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3 minute read
Very often, an argument can be heard that "customers" will not accept any price increase. This is invariably an argument from the sales team, sales management, and sometimes even all the way up to the CEO, especially if he/she is focused on market share or e.g. growth in #customers. It is the case in startups and large corporations alike. Truth be told if Customers, as in actual customers, have a problem with the current price, then indeed it can be difficult to increase prices. In some companies it even means the overall business is in danger as it means customers don't (fully) value the products or services sold. The problem is that very often the quoted "customers" are not really all customers, or even representative customers, but rather either anecdotal and based on individual stories, or the result of exaggerated fear amongst the sales team of putting price increases on the negotiation table.
So what do you do if you know that a price increase is not only possible but also will deliver superior profits, far ahead of any possible customer resistance? Here are some tips and tricks.
1. Get facts straight with price research: Not all customers understand or accept the brilliant thinking taking place in the engineering team or the finance department. In other words, they value different things that the benefits you price for. This is bad in itself, but is also expanded by communication of the wrong benefits. Use price research to understand what benefits and features customers value, and then adjust price communication accordingly.
2. Internal value communication and training: a sales person who is convinced that the price she is communicating is fair and acceptable, is a far superior sales person to the one who has internal (and sometimes external) doubts about the value delivered versus the price charged. So equipping the sales team with pricing research and actual facts about what the market values can make a tremendous difference in getting pricing well communicated, and in the end the ability to achieve higher prices.
3. External value communication: when launching new products, or changing existing product concepts, it is often overlooked how to communicate well about the pricing side. What concepts do customers value? When are they willing to pay a premium versus what type of feature arguments simply get ignored? Using price research such as PriceBeam's Comparative Willingness-to-Pay research allows you to test different concepts and product ideas against each other, and understand what resonates best with the customers.
4. Make price adjustments routine: companies who rarely increase prices teach the customers that this is the accepted norm. Just like they teach the sales team that prices are not (very) important. In other words it creates a company culture of not pursuing profits. On the other side, companies who make regular price adjustments (read: increases), or who implement new pricing dimensions along which they can reap additional profits, teach both the customers and the internal team that prices are important for the company's overall profits. The different between best in class and worst can easily be 30-40 percentage points over 3-5 years.
5. Build an internal value feedback loop: in case there are issues with perceived value (you will find out under #1), it is better to get a handle on it up front and not leave a lingering feeling in the organization of value-delivery problems. Successful organizations make sure that value feedback is transported quickly and effectively back to the decision makers, and the product offering is improved in order to deliver the value that customers value.
6. Pricing is Change. Apply Change Management. Instead of just putting up a price increase, and then have it shot down, make a plan for how to increase prices over time. This includes building value arguments, communicate both internally and externally, and in case of bigger changes make a plan for how to achieve the goal either in multiple steps, or by changing the price structure/price dimensions so the effective increase appears lower than it actually becomes. Changes in pricing dimensions is a key driver of achieving real price improvements, without upsetting the customers (too much).
7. Managerial courage. It is not uncommon that "customers will not like price increases" stand in the way of 20, 30 or even 40% price improvement potential. But a good rule of thumb is, that unless at least 20% of your customer base is strongly against a price increase, then your current price is certainly too low. Pricing is taboo in some organizations but by making an elaborate plan for a) understanding the customers through research b) improving the pricing mechanism (price dimensions), c) managing internal communication and d) managing the external communication, then it is almost ALWAYS possible to improve prices without upsetting customers.
