There are a lot of schools of thought when it comes to pricing your product or service. While you would like to believe that you get it right all of the time, sometimes you miss your mark. But will raising or lowering your prices help? The truth is, sometimes you need a course correction.
In a previous blog post, I talked about how to price your products correctly. That’s a good place to start moving forward. However, if you have a product already on the market and it’s priced improperly, it’s time to adjust.
Reasons to Raise Your Prices
The market is constantly changing, and that means that sometimes your prices need to change too. Sometimes, there’s a shortage of supplies, so you have to pay more for materials. Maybe the cost of living rose in your area, and you have to adjust accordingly. Perhaps you’re charging far less than your competition, but you’re offering a greater value. There are a lot of reasons to raise your prices, and they are all valid.
Dangers of Raising Your Prices
Be careful when it comes to raising your prices. If you raise your price too often, customers may get sick of the constant changes and look elsewhere. If your price increases too much at once, you run the risk of pricing out your most loyal customers. Be aware of these dangers as you consider a price hike.
How to Properly Raise Your Price
While you never want to raise your price, sometimes you have to. Some ways of raising prices are better than others.
Keep an Eye on the Competition
As the Harvard Business Review reports, keep an eye on your competition. If your competitors are raising prices, customers are more likely to accept your price increase as well.
By the same token, if you’re the only one raising your prices in your industry, customers may go to a competitor simply because that competitor is cheaper.
Provide Options
Harvard Business Review also suggests that you offer lower-priced options to keep your customers happy. Sometimes you have to raise your prices, but you can also provide a cheaper alternative to keep the clients on a budget happy.
Keep Customers Informed
It’s a lot easier for customers to accept a price hike if you explain to them why. For example, “We’re sorry that the cost of our planter boxes has increased, but the cost of materials has increased dramatically over the past year.”
When you give customers a reasonable explanation, they’re more likely to accept the changes.
Be Aware of How Often You Raise Prices
If you’ve recently raised prices, then customers won’t like another price hike, no matter the reason behind it.
Some businesses have worked price hikes into their structure. For example, changing fees every year. This serves two purposes. First, it gets customers accustomed to the idea that there will be price changes. Second, it helps spread out price hikes so that the increase is incremental rather than in one large chunk.
Introduce Higher Prices in Stages
The website Score suggests that you phase in a price increase.
“If you’re really worried about losing customers, try raising prices for a small group of clients first to see how they react. If most of them accept it, you can expand the increase to your entire customer base,” writes Score.
Only Increase Prices for New Customers
Another way to raise prices without scaring off your customers is to raise prices for new customers and keep the price you charge loyal customers the same.
Think of it as a reward for their loyalty.
When to Lower Your Prices
There are times when lowering your prices is a better marketing strategy than raising them.
For example, you may have a product that’s languishing on the shelves of your business. Instead of tossing it out, start liquidating. Some money is better than none.
Another reason to lower your prices is that you’re upgrading a product or service. For example, you’re getting ready to release the Pop-o-matic 3000, so you discount the Pop-o-matic 2000 ahead of the new release.
Some larger companies lower their prices to price out the competition. In an instance like this, it’s less about making money and more about taking more of the market share.
Dangers of Lowering Your Prices
You want to be very careful when you consider lowering your prices. Once the market gets used to a discounted price, it is hesitant to return to the original price.
Lower prices can also skew your sales numbers. While it may look like your business is thriving, the truth could be those sales are only happening at the discounted price. Always take into account those lower prices when looking at your sales numbers.
Value vs. Price
Another thing you want to consider when adjusting your prices is that there is a difference between value and price.
Price is the money that someone will pay. It’s tangible.
However, value is intangible. It’s different for every person. While one person may think a product is worth $10, another person might think it’s worth $100. It’s all about the perceived value.
You can use this to your advantage by simply adjusting the value you provide without altering your price.
A good example of this is in infomercials when the announcer offers two for the price of one. While the perceived value has doubled, the actual cost to the manufacturer has only increased a small amount.
Conclusion
Often, changing your prices is the best solution for your business. It may allow for the future growth of your company, or it may simply garner your company better clients in the long run.
Don’t allow fear to stop you from adjusting your prices when it is absolutely necessary.
Written by Erika Towne