Doing a Price Change? Guidelines before making the change.

All companies have to adjust their prices at some point. It’s rarely a matter of if, but when. 

With rising inflation, higher sales and marketing costs, changes in consumer demands, and supply chain disruption; there are many drivers for a price change. 

This should not cause anxiety or create fear that delays important changes for your business. Instead with proper assessment and planning, you can navigate price changes that capture opportunities including increase in revenue, bookings and profit, while actively mitigating risk.    

Before reviewing how your company can prepare for a price change, let’s start wit h why your company might consider a price change. 

Why your company should consider a price change

There are many reasons why your company might consider doing a price change. In our experience we see price changes fall into one of three categories: 

  • Proactive value capture
  • Proactive defense
  • Risk mitigation

Let’s explore each in more detail. 

Proactive value capture: Capture locked value 

Your current pricing may be a result of your company’s legacy pricing approach – follow-the-leader pricing, cost-plus pricing, or guessing (it’s ok, many companies still do this). 

Since you initially launched your pricing, you may have created a clearer strategy. A strategy that lays out what your pricing and business model is designed to achieve for your company. You may have also discovered that your customers find more value in your product. In fact they find your product is unique, differentiated and invaluable to their lives or work. 

A price change is an opportunity to align the value you create and deliver to your product and your customers. The potential impact of aligning these factors? Greater revenue, increased bookings and cash flow, and higher profits. 

A proactive approach is intentional and strategic, but has long lasting financial and go-to-market potential. 

Proactive defense 

For some companies, a price change is a defense strategy.  The defensive posturing is driven by several different factors. 

Some companies see an increase in competitors in their industry. While not an immediate threat, making pricing changes now is a proactive move to establish a clearer defensive moat.

For other companies, they may be experiencing softening demand, but a deeply committed and loyal community of customers. For these companies they may opt for a proactive defense to stem potential decline in less loyal customers. 

Adjusting price points, packaging and offers, and updating the value proposition for the company, product and pricing supports a defense strategy.  This not only makes changes in response to shifts in the market and customers, but captures business benefits including increased revenue and profits. 

Immediate threat: Risk mitigation

Some companies face immediate threats to their business that require price changes. These threats can include the fast growth of competition, sudden loss of customers, and increased costs including customer acquisition costs. 

A price change – both up and downward – is one way a company directly addresses threats to the business. One common way is through a price decrease. This was a tactic companies like Tesla used toward the end of 2022 to increase demand and raise pressure on competitors. This helped Tesla to increase units sold by an additional 20,000 vehicles (or 4%) quarter-on-quarter and was a record quarter for the company. For these types of price change, the question then remains for the company as to whether further growth or traction is sustainable without additional price changes. 

Those companies that see threats as an opportunity, view price changes as a way to reposition the company, its product and value proposition. In such a scenario, a price change can also be used as a way to adapt financial outcomes – revenue, bookings, profit – to respond to the threats. Assuming the company has not done so already, this can also give the company room to adjust its overall business strategy and align the pricing strategy to changes to future direction. 

Pricing change guidelines 

Once your company identifies why a price change is needed, we recommend using these guidelines as your company designs its price change strategy. 

Double down on value 

One of the most important rules when doing any price change is to double-down on value. Your prices do not sit in a vacuum. They are tied to the value your customers experience. Making any price change will immediately raise the value question. 

This is true for price increases and decreases. This is also true when pricing packages and offers are adjusted or eliminated. 

If you don’t know your value, and the value you need to focus on, your company will face challenges in defending the price change. This can negatively impact reputation, financial outcomes (e.g. revenue, profit), and longer-term competitiveness including the ability to win/acquire new customers. 

If you are clearly aligned on the value your company delivers, the product, the customer and the price, your price change will have some positive tailwinds to support its success. 

Valuable transparency 

A key component of successful price changes is transparency. This goes hand in hand with how you communicate your value. 

Customers generally do not like disruption.  A price change causes disruption. While this may be necessary for your company, it is important to explain to customers current and new, why prices must change. Your company should be transparent in why, but also why the substantial value exists and what new value the customer can unlock (e.g. unused feature). 

For example, when Neflix raised their prices in 2022 they did not cite the changes due to inflation costs, as many other corporations have, but that the “investment” made for their users will help the company continue to deliver high quality in house productions such as “The Crown” and “Bridgerton”. The way they communicated this price change  was to help customers feel they  collectively contributed to the production of Netflix’s  award winning shows and movies, and in order to continue a price change  was necessary. 

Netflix’s strategy increased the value of their relationship with the customers, and most importantly eased the transition to new prices.

Gradual Selectivity

As with most changes, adjusting prices gradually can  make the transition smoother for both the company and the customer. 

Price adjustments do not need to be a radical change that will ward off any other adjustments in the future. Quite the opposite. Your company is communicating that the value you deliver to your customers has increased or unrealized. This additional value delivered can be captured in the current price change or gradually over time.

This is strategic and intentional, and often done by companies that are proactively capturing value or taking a proactive defense strategy. Gradual selectivity is also done by companies that are actively managing their pricing strategy and is aware of the magnitude and timing of price changes.  

One example is selectively adjusting prices for targeted customer cohorts and segments. For some customers, a price change today is not needed or appropriate. For another set of customers, there is a misalignment between current prices, the product and the value received.  It can be more prudent for your company to gradually change prices within the customer base then one universal price change.  Methodically adjusting your prices will have positive long-term effects on your customer retention. 

Final Thoughts

Each company is different and therefore price adjustment strategies are not uniform for everyone. Differences exist whether your company is a leader in the market or a new entry startup. 

It is no surprise that consumers have difficulty with change, especially when it comes to prices. You should not let this influence your pricing changes, but instead view it as a chance to recalibrate and strengthen your value, your positioning and your customer base. 

Applying the guidelines we outlined above will give your company greater confidence  that the customers who are aligned with your value exchange – the prices they pay for the value you deliver – will not be deterred  by pricing adjustments that are in the best interest of the company and the consumer. 

If you’d like more information on how to adjust your pricing, sign up to our weekly newsletter or contact us directly with any questions you may have.

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How To Effectively Change Prices Without Losing Customers

Price Change

You may be at the point in your company that it’s time to change prices.

Understandably, this can be intimidating.

You’ve done the work to create thoughtful pricing and packaging changes. You focused on creating pricing that aligns with your customer’s willingness to pay. Now it’s time to execute. So what can you do to ensure a successful pricing transition?

It is a question we have helped a number of our clients successfully navigate. Luckily there are  useful strategies to go about price changes effectively. The focus is not only the commercial benefits of pricing changes, but to also ensure relationships with existing and prospective customers are strengthened. 

In order to simplify the process and help ease the stress of pricing changes, let’s start with making sure your customers understand the changes being implemented. 

 

Transparent Communication

Transparent communication is a crucial step in any pricing change.

Customers value companies that they perceive as honest and open about their business practices.This includes any changes to price. 

Effective price change communication should be focused on information. This information should focus on helping customers answer three core questions: 

  • Why is the change happening?
  • What is the nature of the price change?
  • When will the price change taking place?
  • If the customer has additional questions, where can they go? 

Never wait to let customers know about changes after the fact.

While you want to be mindful of the potential financial impact any price change will have on your customers, this also does not mean you have to treat price changes as an unfortunate mistake. Your price change reflects changes in value – ideally more – that is given to the customer. The price change is a reflection that you understand that value and are willing to defend it through your pricing.  

Customers should see a benefit from the changes. This can be seen through investment for enhanced content, maintaining important services such as customer support, new features, better employee wages, etc. For one of our clients, part of the reason for the change is to further invest resources into serving under-represented communities. 

That is the goal here — we want customers to feel in the loop about where their money is going in order to keep their business.

In this process, it is important to remember that not all customers will be accepting of this change — and this can actually be a blessing in disguise.

 

Accept some customers don’t like change 

The thought of upset customers seems scary. 

Price changes will inevitably lead to some unhappy customers. There may even be some customers who are unwilling to pay the new prices and will leave. The balance you are trying to achieve is maintaining a customer base who are more profitable and remain aligned to the value exchange – the prices they pay to the value you deliver.

For some companies, a price change is a tool to assess how aligned customers are to their value proposition. This is a way to recalibrate the customer base. 

It is a simple question of — do you want to support customers who are so price sensitive that changing prices will automatically lose their business? The answer is probably not. Why? Because these types of customers are often expensive to maintain. This can include higher utilization of customer success or support teams to higher complaints on social media or other channels. 

While you may not be able to only choose your best customers, you can definitely find ways to strengthen your customer base that’s more aligned with your value proposition.

 

Gradual changes 

There is a tendency for some companies to want to do one large price change. One driver is so they don’t have to do it again. 

In practice, price changes do not need to be drastic. Price changes should be thoughtful and methodical, and in some cases gradual. Gradual changes can space out price change over time, or the change itself can be announced and applied over time with different customers and products. 

Gradually introducing changes can help ease customers into changes and follow your journey to create more value for them.

One example is Google change to calculating storage consumption on their Drive product.  Previously, Google family of productivity products (e.g. Docs, Slides, Sheet) did not apply towards storage limits. In late 2020, Google announced these products will count towards storage limits, thereby accelerating storage consumption and moving customers closer to paid plans. To give customers – personal and business – sufficient time, they were going to roll out changes over a 14 month period. 

Companies can also gradually change prices by introducing these changes on a smaller scale — to a select group of customers. These more gradual changes are used as price tests and assess how different customer segments may react to the changes on a larger scale.  

 

Be selective 

Just as you should be methodical, price changes can also be applied selectively. 

Not every product and every customer warrant a price change. If you created a customer segmentation linked to pricing, then this should be used as the basis for selective price changes. 

Starbucks is constantly changing their menu prices and they usually do so only on select products: food, drip coffees, espresso drinks, frappuccinos, or even specifically targeting sizes. For example, Starbucks may change pricing by a few cents for only their small sized, brewed coffee drinks. There is a specific customer segment where this price change may be potentially meaningful, and will how this segment reacts and how this impacts sales at select retail locations. 

Netflix also does this by choosing to increase prices on certain plans they offer. This year they decided to make pricing increases to their standard ($12.99 to $13.99) and premium plan ($15 to $17.99) while keeping the basic plan ($8.99) the same price. 

Selectivity can help ease adoption for pricing changes, while being thoughtful about what areas would respond the best to these increases.

 

Final thoughts

We just went over a few ways to effectively change prices while minimizing potential negative reactions from customers. .

Within each of the strategies, the focus is on the customer and how best to engage that customer for the changes your company needs to make. 

There are many examples where price changes go horribly wrong. Common reasons include late communication of a price change and forcing customers to adopt not only new pricing but pushing customers out of existing plans and products. Another design issue is that while price changes for a product is correct, companies do not close off potential loopholes or other ways of circumventing paying “full price”. 

Ultimately price changes should center on benefits, and does not have to mean losing customers as a result.  

Through deep research, pricing-centric customer segmentations, and a comprehensive communication plan, the price change should be mutually beneficial, ultimately leading to greater growth for the company.

 

 

 

 

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