With all the upheaval due to the COVID-19 situation, most businesses are looking for ways to recover some of their losses. Whether your company is business-to-business or business-to-consumer, you’ve probably experienced a decrease in revenue and possibly a rise in the cost of your supplies, as well.
Knowing that consumers are going to be more careful about spending for the foreseeable future – both out of caution and also due to their own financial losses – means most businesses will be reluctant to raise prices anytime soon. However, more than any other variable, price has the greatest impact on the profit you earn.
But will customers accept a price hike or will they go elsewhere? The risk is probably lower than you think. For instance, if your current Gross Profit Margin is 40% and you raise prices by 6%, your sales would have to drop by 13% for you to lose money.
In fact, now may be one of the best times to raise prices because everyone understands that COVID-19 has had a massive impact on businesses. If you decide to go ahead with an increase, what will make the biggest difference is how and when you communicate the changes to customers.
Communicating a price increase
The truth is that customers hardly ever buy something based on price alone. They usually base their buying decisions on additional factors including quality, service, value, delivery and even methods of payment. Many of these factors have been important during COVID-19 – for instance, customers have made choices to buy (and often were willing to pay more) from businesses where they could pay online or delivery instead of having to make a purchase on site, etc.
However, for your loyal customer base, you can’t just increase prices and hope nobody notices.
Customers will notice, and if you don’t give them a reason behind the change, they’re more likely to become upset and look for other options.
The best way to deal with an increase is to be open and direct about increases in advance. If you’ve done a good job of communicating regularly with your customers during COVID-19, that effort will serve you especially well now.
With that in mind, here are three ideas on how to communicate a price increase:
- Create new options
One way to soften the blow for existing customers is to create a new pricing structure. Consider sending out an email or letter to your list with a ‘VIP’ or limited-time-offer price, allowing them to lock in their current rate by signing up or using a special code. Explain that prices are going up due to costs, but that you value their business and want to reward their past support. Doing this gives you the chance to increase prices for your new customers and build loyalty with existing ones at the same time.
You might also consider a temporary service charge or COVID-19 fee. Some hair salons and restaurants are already doing this now to cover their safety equipment or supply expenses such as masks, sanitiser, plasticware, carryout containers, etc.
- Tell the truth If you’re seeing increases in manufacturing costs, raw materials (for instance, because you can’t get certain items from Asia right now), packaging, etc., make that clear. You don’t have to provide specific financial information. Increasing prices to cover expenses while continuing to meet customer expectations and maintain a level of quality is perfectly legitimate.
- Make it “new” or “improved”
If you can show that your product or service is being improved in some way, talk about it. Something that’s better than before – especially if a change came about due to customer input during the COVID-19 crisis, is necessary to continue your current level of quality, or is necessary to keep your staff and customers safe– is worth talking about and people will be likely to pay more for it.
A final note: Don’t forget to clearly communicate changes, reasons and timing to your staff. You don’t want them giving out old prices or wrong messages about why prices went up.
Once you’ve devised a clear strategy and communication plan, adapting your pricing strategy is easy – and will NOT frighten customers away. They’ll stay with you, benefiting from the opportunities and choices your new pricing strategies made possible.
For help in reviewing prices, the impact of changes on your finances and additional advice on how to communicate a price increase, please contact us.