Pricing a product has arguably the most immediate and severe impact on a business’s bottom line. To be sure, it’s one of the most important factors in retail. Coming up with price increase strategies is complicated and finicky – a bit like trying to hit a moving target. Nevertheless, it is necessary for businesses to remain profitable and evolve. But how to raise prices without losing customers?
All Americans have felt the pinch of inflation. This includes retail industries. Both operational costs and the cost of goods have soared. As such, raising your prices in an honest and thoughtful manner is a fair move to make. And doing so conscientiously will mitigate the risk of losing customers. Read on for more details to learn if you should raise your prices, and, if you do, how to do so fairly.
Table of Contents
- Why Have Prices Increased Everywhere
- How Do Companies Increase Pricing
- How To Raise Your Prices Appropriately
- Increase Pricing By Adding Value
- Make A Policy For Recurring Scheduled Price Raising
- Check Your Previous Price Increase History
What Has Caused The Need For Prices To Go Up?
There are many factors that have caused prices to go up across the country, and the world, for that matter. November of 2022 saw inflation of 7.1% over November 2021. All products, no matter what retail industry, cost more for the supplier and, therefore, the customer.
Global phenomena, such as the pandemic and the war in Europe, have disrupted supply chains and shaken up shipping routes. This means that the cost of energy has risen significantly. Everything costs more when gas and oil do. Plus, worker demand is still fairly high, which means that employees are (rightfully) earning more than in pre-pandemic times.
Increasing The Price: What Have Other Companies Done?
If you’ve gone to a convenience store, liquor shop, bog box retailer, or gas station in the last year or so, you’ve almost certainly noticed substantial price inflation. Prices are up across the board. Obviously, depending on the industry, there are different steps that businesses should take to increase prices without losing clientele.
Some companies have added tiered pricing. They give multiple options, adding further benefits to their top tier while taking away some of the value of the lowest. This type of pricing works best in the subscription retail and SaaS space.
Other retail businesses, such as consumer goods and food brands have actually increased prices over the years by reducing the amount of product they give in their packaging, a frustrating phenomenon known as shrinkflation. A bag of coffee used to be a pound, now it’s 12 oz. Your bag of chips has more air in it. Chocolate bars increase the size of their packaging and reduce the actual chocolate content. You get the idea.
However, if you’re a small business that wants to maintain trust and loyalty with your customers, we recommend treating the situation more honestly. That means raising prices fairly and openly.
How To Raise Prices Fairly
The most important aspect of this is being forthright with your customers. Notifying clientele ahead of time will keep them informed, maintaining trust in the relationship. Ideally, your sales force should be equipped to spell out exactly why you are raising prices. Explain to them that the cost of goods (COGS) has gone up, that your company is paying higher compensation to keep up with market trends, and that, most importantly, your brand or business has a commitment to offering high-quality items.
Keep in mind that your price increases have to make sense to your customer as well. Shoppers can easily see what competitors are charging with a simple internet search from their smartphones. That’s why it’s best to consistently ask for feedback and test the waters with price increases. If you get pushback, as yourself and your customers, are they actually unhappy about the price or are they unhappy with the product? Stick to your mission of offering great products and customer service and responding to customer criticism.
Raise The Prices By Giving More Value or Updating Products
The best time to raise prices without losing customers is when you release new products. Try to provide actual value that customers won’t get anywhere else. Changing packaging, or offering a sweetened, bundled deal can ease the pain of dishing out more cash.
For instance, let’s go back to the example of coffee. If you own a coffee shop and plan on increasing the price of a 12oz bag of beans, consider adding on a free cup of drip coffee with the purchase. Your actual COGS on the cup of coffee is pennies on the dollar, and your price increase for the bag of beans will be significantly more. Thus, you’re still making a profit while providing the customer with an improved value.
Don’t feel like giving out “free” coffee? Fair. Enhance the deal by providing more in-depth information about ethical sourcing. Give customers some narrative about the village or town the beans come from. Perceived value is important, especially when prices are raised.
Improving the value proposition of various products can come in many forms. When you do your marketing for these products, be sure to make use of this narrative to promote the item and justify its increase in cost.
Consider Making Price Increases Consistent and Periodic
Many businesses raise prices every six to nine months. Establishing an incremental plan for such increases that coincides somewhat with the economy at large will establish a pattern that makes your clientele more accustomed to price hikes.
Still, remember to try to time these increases strategically. If you’re getting an influx of negative reviews for a particular product, it might not be the best time to increase its price. Try to respond to customer demand and feedback to continue learning and fine-turning your pricing strategy.
Review Price Increases In The Past
Take a look at your previous sales reports. See how customers responded to price hikes in the past. Are you able to notice a drop in sales for specific products after their price was increased? Perhaps some more incremental or less severe price changes worked better than ones that were too abrupt.
You might even find that some products are immune to price changes while others are expected to remain cheap forever. A lot of pricing comes down to attempting to comprehend human behavior. Using purchase history and product performance data in response to price changes can help illuminate these behavioral patterns.
Leverage Point Of Sale Data
Investing in the right point of sale solution is a must for retail businesses. With in-depth sales reporting and inventory analysis, KORONA POS equips businesses with the insights they need to properly price products. We offer a fully customizable retail KPI dashboard and ABC analysis to measure efficiency and eliminate blind spots in your inventory.
Our cloud-based system is multi-store friendly, so you can compare pricing strategy across regions or locations. Give us a call today to learn more about our point of sale software and schedule a demo!
FAQs: Raising Prices Without Losing Customers
You can raise prices without losing clients by being open and honest in notifying them before they come to you. Explain to your customers why the prince increases have been put in place. In addition, try to implement these changes when introducing new products or packages.
To smoothly convey price increase to customers, try to be forthright about what types of price changes are occurring and why they’re happening. Don’t make drastic price hikes all at once. And most importantly, listen to the concerns and feedback of your customers.
In some control states, the government intervenes at the distribution level to select brands and set prices. Other controlled states exercise power at the retail level by limiting sales to ABC outlets.