8 Tips for Raising Prices Without Customer Backlash
As you work to increase your conversion optimization, what are you really aiming for?
More profits, right?
If that’s that case, pricing your products is a necessary consideration when optimizing your sales funnel.
What’s especially tricky is when you need to raise your prices. Do it right and your customers will barely notice or care. But if you do it wrong, you could find yourself on the forefront of a customer revolt.
Let’s look at eight tips for raising prices—without negative customer backlash…
1. Add other options at different price points.
Let’s say you sell a widget for $49.95 with updates and support for one year. Using this strategy, you would offer three versions—or options—of the same widget. Here’s an example:
- Low-end – $19.95 – no support or updates.
- Medium – $49.95 – support and updates for one year.
- High-end – $99.95 – support and updates for one year plus a bonus widget.
See how that works? Here’s another example from my friends over at Bidsketch:
With this strategy, you’ll always have customers who opt to take the lowest price. But, because you’re offering less, these customers are using fewer resources. (You might find that your lower price point offers a better profit margin.)
However, you’ll also have customers who want the higher priced service—and they’ll gladly pay for it—which, it turn, helps you raise your prices for a segment of your customers. (Keep in mind you should always test any changes you make. In some markets, no one will buy the cheapest option. In others, no one will buy the highest priced option.)
As a quick and inexpensive test, create two options for your product or service. The first option is your current offer. For the second option, add something to your original offer and increase the price (try to double it). Watch your stats to see how many people choose the more expensive option. For every person that does, that’s double the profit!
2. Phase out low-cost products.
While they’ve used the dollar menu for years in most of their advertising, rising beef and commodity prices have franchise owners practically begging McDonalds to eliminate the dollar menu.
But… it’s not going away completely.
McDonald’s has a clever trick up their sleeve…
Instead of doing away with the dollar menu, they’re replacing it with a “dollar menu and more.”
They’re basically phasing out lower cost items for higher cost items. For example, they removed the $1 small soda and $1 small French fries. They’ve been replaced with a $1 ice cream cone and $1 cookies.
Why? Because ice cream cones and cookies cost the franchises less, providing a higher profit margin than the soda and French fries.
Here’s a picture of the new “dollar menu and more” menu:
Notice the higher priced options, adjusted prices on pre-existing items, and the lower cost replacements?
If you’re selling a physical product, this method is easy to implement. First, find a more affordable supplier for your product or replace lower markup items for higher markup items. For instance, in restaurants, beef usually has a minimum 30 percent markup. Chicken, on the other hand, usually has the highest markup of any meat in restaurants.
3. Increase the perceived value when raising prices.
By adding value to your product—making it worth more to the consumer—you can raise prices without customer backlash.
Here’s a great example of increasing perceived value from Proactive:
Notice how they say, “Just got better?” That’s their reason for raising prices.
However, the medication they use in this “new” product is likely the same stuff in their old bottles. In fact, the active ingredients in Proactive, benzoyl peroxide and salicylic acid, are found in the majority of acne treatments!
Another way Proactive raises their value is by using celebrities in their ads, as they do in this one:
What can you do to raise the perceived value of your product or service? Maybe, like Proactive, you could make a new and improved version or get a celebrity to endorse your company.
Another, easier way to raise your perceived value? Look at your current offering and find benefits that you’re not using as a selling point…
Maybe you offer 24/7 support. Don’t you think your customers would pay more for that?
Or maybe your widget has a fast-start training course… that alone could be worth a lot to your customers.
Pull out and highlight all the features and benefits of your product. Then, use the added value as your reasons when raising prices.
4. Offer “lock-in” pricing to existing customers.
When raising prices it’s a good idea to offer a deal to existing customers. This positions you as someone who cares about your customers. Plus, it helps them get over your price increase and may even increase their loyalty to you.
One industry using the power of this pricing strategy is electric companies. Electric prices go up and down unpredictably. But many electric companies offer “locked-in” plans so you won’t have surprises in your bill.
Here is a sample from BounceEnergy, an electric provider in Texas:
See how the prices go up as the “fixed rate” term gets longer? Sure, you might pay more now, but when prices go up, you’ll be happy to have the “fixed rate.”
Use the “locked in” rate method to keep your current customers happy while increasing your price for new customers. To do this, offer existing customers the current rate for a specified amount of time. (Some companies offer locked in prices for life!)
5. Be up front and honest.
If you have a company that gets a lot of media attention—or has a strong following from a loyal customer base—be sure to announce your price change first. Doing this gives you the ability to get ahead of customer service and public opinion issues that could arise.
Also, keep in mind that studies show an apologetic approach isn’t the best way. Instead, be up-front and honest. Here’s an example from an Australian burger joint:
See how they explained the price increase as necessary to continue providing the quality people are used to?
Also, the timing of your announcement is important. You want to let current customers know ahead of time, so remember to announce your price increase shortly before it goes into effect. A few days should be plenty for customers to feel informed.
6. Don’t get trapped in a low-cost strategy.
The likely cause of Netflix’s 2011 price increase disaster was building their business on an extremely low price point. They did this to beat out their competitors, but after they had everyone signed up—cheaply and happily—they pulled the plug on a major part of their business plan…
Almost immediately, they lost 800,000 paying customers. Plus, their stock took a significant dive. The Facebook page below was a common sentiment among their once-loyal customer base:
As you may have guessed, low-price strategies work to find customers. But retention, when raising prices, will likely be low as well. Instead, start with prices you can profit from. Then when you do have to raise prices, consider locking existing customers in at their current price (as discussed above).
Another example of a low-cost strategy is Fiverr.com. Fiverr is a website where you can pay just $5 for practically anything from logo creation to personalized gifts. (I once hired a banjo player from Fiverr to make a birthday video for my husband.)
But, I’m wondering what will happen to Fiverr in a few years. If people will no longer exchange services for $5, will Fiverr disappear? Or rebrand to something like “FiverrAndMore,” “FiveAndUp,” or maybe even “TenPlus?”
7. Charge for shipping or extra services.
My husband and I run an e-retail site called ComfyEarrings.com. Since we started in 2010, shipping and manufacturing costs have increased significantly.
For example, in 2010 and 2011 we offered free shipping anywhere in the world. But, when international shipping rates more than doubled overnight, our profit margin on those orders disappeared. Unfortunately, we had to change our “free shipping” policy to “free shipping in the US only.” Since most companies charge for shipping, our international customers understood and there was no fall out from that “price increase.”
Later, when shipping prices increased again, we were forced to raise prices again. To keep customer backlash down, we decided to charge just $2 for flat-rate shipping anywhere in the US. (Orders over $30 in the US still ship free.)
This strategy has allowed us to recover lost profits from shipping and increase our average order size (because most people spend $30 to get free shipping).
If you don’t have a physical product that you ship—or if you’re already charging for shipping—consider adding extra services or perks to raise prices.
For example, many freelancers charge an extra fee for “rush” projects with short deadlines. Maybe you could add an “expedited service fee” to raise your prices without directly raising the cost of your product or service.
Here’s an example from Pajamagram, who offers “free gift packaging” with all pajamas:
You can also upgrade the “free” gift packaging and pay $5.99 for premium packaging:
Another example, also from Pajamagram, is the option to add a personalized monogram for $12.99:
8. Raising prices gradually.
Finally, if all else fails, try raising prices gradually. But keep in mind, this doesn’t work for every business.
For instance, if your business relies heavily on your social media presence, this probably shouldn’t be your first tactic to raise your prices. Why? Because one upset person tweeting about your price increase could quickly turn into hundreds of upset customers chiming in. Just look at the Netflix example above.
One company who successfully raises prices again and again is coffee chain giant, Starbucks. Last year they raised the price of their packaged coffee 17 percent in their cafes and 12 percent in grocery chains. However, they claim their price increases are “much less” than some of their rivals.
The reason they can do this is likely because their higher-end consumer base is less sensitive to price increases. Also, they have their consumer base hooked on their product. For many people caffeine is their drug of choice.
To effectively increase your prices gradually, raise them as little as possible each time and try not to raise them too often.
The need for raising prices will come in every business, but don’t forget to use the strategies above—like adding value and being up-front and honest—to keep customer backlash down.
Your turn. Have you increased your prices with good results? We’d love for you to brag about it in the comments below.
Or, if you have questions about any of these techniques, please comment below. Let’s get this discussion going…