12 Jul Rising Prices
I know inflation is affecting everyone, but it is killing my company. Our vendors have raised their prices to us, and everything costs more.
I have friends that have experienced high inflation in their careers as business owners. This is the first time for me. I feel things are out of control, and my options are limited.
We offer a great product, and our services are top-notch. Should we raise our prices? Would our customers stick with us? What should I do to protect my company?
I would love to have some ideas.
Dear Rising Prices,
I feel your pain, and many others do, too. Inflation, pricing, customer retention, and company health are always essential but seem especially difficult to navigate these days. That is the bad news.
The good news is that there are things you can do. You are not helpless, and you are not alone. Let me give you five principles to consider.
1. All business is a value exchange. That is, you give the customer something they consider valuable, and they give you something you value (often, money). If you are in a B2C business, you likely do not negotiate each transaction. But, over time, you do test the fairness of the exchange. B2B businesses more commonly negotiate transactions. Here’s the deal. You are entitled to more when you provide more.
2. Know what your customers value. You are “flying blind” without this information. After all, if you offer something a customer does not care about, they are unlikely to pay you for it. On the other hand, if the value recognized by your customer exceeds their expectations, you are well-positioned for a price increase. One quick-service restaurant knows that cleanliness is important. That’s why they make a point to frequently clean their dining room using antiseptics rather than a wet rag. Customers notice because they care.
3. Identify more value. Sometimes we get trapped into thinking that buying decisions are driven primarily by price. In fact, customers tend to buy on emotion and intangibles. There are almost always unexpressed values that justify a high price. For example, I know a woman that chooses her car repair shop based on the respect shown to her by the staff. (Of course, she wants a successful repair, too. Those are the table stakes.) They were polite to her and offered bottled water to drink while she waited. She is willing to pay a little more for a better relational experience.
4. Communicate the value you provide. Suppose that you found those unexpressed values. Now, you have to communicate those values. For instance, if your customers care about timeliness, you could promote your speed of service. One ER hospital owner, for example, decided to guarantee that a patient would see a doctor within fifteen minutes of their arrival, or the service would be free. In a healthcare crisis, parents remembered the billboards with the guarantee. Price shopping was not important when junior broke his leg. Remember that communicated value sets the stage for fair pricing.
5. Price according to value. Here is where you want to end up. Let’s say that you have followed the first four principles. Now is the time to increase your prices. Your customers will understand and accept the increase because you have laid the groundwork. Most accept good reasons and fair exchanges. In our experience, the likelihood of losing them is diminished by the careful explanation of the value exchange.
Keep creating your great products and providing your top-notch services. And remember, no matter how careful you are, some customers may leave you. Be encouraged that small losses are more than offset by the general acceptance of your increased prices.
BTW, if you want more pricing approaches, let me know. We have an excellent resource for you.
Let me know how things go for you.
Principal Chair, C12 North Texas