How to increase pricing
by Jon Manning
Things may play havoc with your pricing in the next couple of months: federal budgets, state budgets, and the carbon tax just to name a few.
If you are a "true believer" in value-based pricing, none of this will concern you however. You price on the basis of value, and changes in your costs are irrelevant to your customers, who buy from you because of the value you provide them with.
But unfortunately, 70% – 80% of companies resort to cost-plus pricing, where they do work out their costs, add on a margin and hope for the best. For these companies, heads will be spinning on how to increase prices to cover these costs.
A couple of years ago I worked with what was then a small start-up business. They'd launched with what seemed to be the right pricing model, but it had flaws, and needed to be changed. In the process, every single customer was going to be asked to pay more.
This particular start-up rented an asset out to its customers on a pay-as-your-go basis. But when the product was not "on loan", it was still running up expenses: insurance, deprecation and the like. The legacy pricing model did not recoup these costs, so something had to change.
The pricing was easy to fix: lower the usage charges and apply a subscription fee to recoup the costs incurred by the assets. But as with all companies, large and small, the biggest challenge was in the execution, and how to communicate the price change to customers.
Execution and communication
All new customers would be put on the new price plans with immediate effect, while a personalised pricing communications strategy for existing B2C and B2B customers was devised. Existing B2C customers would be sent a personalised email explaining the magnitude of the change, why the change was necessary and the objectives of the price change (the proceeds would be reinvested back into the business).
B2B customers received a personalised visit from the sales manager, who communicated the same message. Both the email and the face-to-face visits all concluded with the same message: "We understand if you wish to take your business elsewhere".
The company did not lose one single customer. The well-executed pricing communications strategy worked, and within 12 months, revenue and customer numbers were up 20%. Since then, a large American multi-national has acquired the company.
It is possible to increase prices. And it is possible to increase prices without losing a single customer. It all comes down to the execution of a disciplined pricing communications strategy.
ANZ have asked me to blog for them. The opinions expressed here are my own and not those of ANZ.