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How to communicate price increases to your customers

Your customers need to be gently reminded of the value they are receiving from you.

July 7, 2014 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

"We're the dumbest business people in the world. We post our prices in two-foot-high numbers atop 20-foot-high posts." said the executive of a local oil distributor who owned and operated a number of service stations.

He's right! Can you imagine a better way to focus your customers' attention on price? So how should you go about communicating your price increases?

Raising prices

Before we answer the "How" question, let's talk about minimizing the need for these unpleasant communications. The most successful approach is to raise prices at least once per year. Why? Because these increases will be smaller in magnitude, somewhere in the vicinity of 3 percent to 5 percent.

First, customers know that prices, absent innovation that dramatically improves productivity, have to go up as costs go up. For decades Intel was doubling the capacity of its chips which allowed customers to get faster chips while prices declined. Absent those manufacturing innovations, the price of Intel's chips would have increased each year as labor and other costs increased.

Second, when customers view a small increase versus the time it would take them to identify and interview new vendors, risk receiving inferior quality products/service, the headaches that would ensue not to mention the potential loss of their customers, the price increase pales in comparison.

Third, if you don't raise prices each year then hit your customers with a 10 percent to 12 percent increase or more, you make it more worthwhile for them to suffer the search for alternatives.

Fourth, if customers are going to leave over a 3 percent to 5 percent price increase, they really weren't much of a customer. Indeed, the likelihood is that they are your most demanding, most difficult-to-please customers. You may actually want to throw a party to celebrate their leaving.

Now that you have the secret to minimizing price resistance, let's talk about how to communicate those increases.

Communicating annual increases

If it's the 3 percent to 5 percent increase mentioned above, simply give your customers some advance notice. 30 days is more than adequate. By giving them advance notice you allow them time to order what they need at the lower price and avoid the objection "if I'd have known I'd of ordered this earlier."

Advance notice also helps your customers get used to the idea of higher prices and gives them the opportunity to shop alternatives if they so desire. Most won't. Implicit in the advance notice is a statement of confidence that you're providing quality products and services and you're not worried about competitors.

Communicating catch-up increases

If you haven't raised prices in several years and are considering a double-digit increase, you have to be prepared to handle objections. Your customers are not only likely to threaten a search for an alternative, they're likely to follow through on it unless you can substantiate the value you're providing.

Hopefully you've been paying attention to the good things they've been saying about you, your company, what they enjoy about working with you and why they enjoy your products/services. Those are the things that you're going to use to remind your customers of the value they're receiving.

Don't denigrate your competition and don't blame the increase on rising costs. In today's world there's an expectation that you're working to increase productivity. Lower costs are a byproduct of increased productivity. Customers don't want to pay for your inefficiencies.

Prepare your sales force and your customer service reps to remind customers of the value they're receiving and how that value is the result of investments you're making in innovation, talent and processes designed to provide them with an enjoyable experience. Help them relive the great experiences they've had over the years and they're more likely to accept the increase without searching for an alternative.

(Photo by Mark Turnauckas.)

About Dale Furtwengler

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