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How to Raise Prices Without Losing Customers

Raising prices might seem like a good idea when trying to hit revenue targets, but failing to consider the resulting customer experience can be costly. We teach you how to help your customers gulp down the bitter medicine

Matt McAllister
October 04 2017

In 2011, Netflix made a huge pricing error. The entertainment service announced a split of what was initially a $10/month charge for online DVD rentals and streaming internet video into two discrete products. Customers were given the choice between one or the other at $7.99/month or $15.98/month for both. From the customer’s point of view, the price of a single familiar service had instantly risen 60%. Roughly 800,000 people cancelled their subscriptions. Netflix’s stock price fell 77% in the following four months.

In contrast, Appcues, a Boston-based tech firm that helps app developers create personalized onboarding flows, alerted their customers to a similar price jump. Before crafting the announcement, Appcues co-founder Jackson Noel established three clear goals: to clearly communicate the increase, foster urgency in the sales process, and prevent customer frustration. The resulting email produced a 263% sales increase and led to their best month on record.

If you’re planning on changing your pricing model, take the following tips into consideration:

Add Extra Services or Value-Adds

Equating price increases to a boost in quality or a new feature helps keep customers from feeling as though they’re paying more for something they’ve previously enjoyed for less. As Doreen Bloch of Poshly Inc. points out, “When you add a value feature to your tool, it gives you a reason to review pricing with your clients.” Some net-positive additions to a B2B offering include ad-hoc consultation services or QA support. B2C businesses can coincide new product releases with price bumps to demonstrate an increasingly sophisticated and therefore expensive business.

Avoid Raising Fees for Existing Customers

If you can afford it, let your current customers keep their pricing plans. It can be difficult upfront, but it demonstrates commitment to your relationships. The same customers you accommodate during a price increase will be more receptive to future marketing campaigns, which could equate to a higher LTV than if you’d tipped the cart. Netflix employed this tactic to great effect during their gradual price increase in 2015.

Learn to Market Your Product to More Affluent Customers

Customer behaviors and expectations change as you move upmarket. Higher-spending customers are subject to different social and political influences than cost-based buyers. Brand positioning starts to play a much larger role in the buying journey. Be aware of your own place in the market, as well as that of your competitors. If your product is entering a crowded price bracket, invest the marketing resources necessary to stand out.

Be Transparent

The more direct you can be about your reasons, the better. “I explain to my customers upfront that I’m raising my prices. I tell them that I’m moving with the market and with my level of expertise, which has increased since they first hired me,” suggests Alexandra Levit of Inspiration at Work. Use objective language and cite measurable reasons for the change. Show your customers what they’re money is going towards. Announce upgrades, back-end dependability, new UI/UX additions, and any other incremental improvements. Customers don’t mind paying for quality, and a direct approach assures them that you’re making an effort to stay competitive.

Timing Is Everything

Consider your business’ unique seasonality when changing price. If your transactions spike around the holidays, delay an increase until January. Revisit your organization’s long-term priorities before adjusting price. An up-and-coming outfit might want to absorb a lower margin if it means capturing market share. Entrenched organizations can be more liberal with their price adjustments knowing that they aren’t risking their long-term success.

Offer A Lower-Priced Option

Price jumps prompt customers to look at the parts of a product that they either don’t use, or is unsatisfying.  While it might not offer short-term benefit, a graceful down sell shows customers that you have their best interests at heart. “Let customers focus on value by giving them a second, lesser-priced option… This is especially helpful if the lower plan is a little less expensive than what the customer currently pays,” says Trevor Sumner of LocalVox. This keeps the door open for upsell once your product has caught up to their needs.

Give Your Customers Plenty of Notice

Part of maintaining customer relationships is considering their needs. Offer as much notice as possible when adjusting price. It allows customers to make necessary arrangements with internal stakeholders. They can then consider the future of your business relationship in a calm, clear-headed environment. Sudden changes in pricing can have cascading implications on a customer’s departmental budget, risking long-term business opportunities.

Handled properly, any growing outfit can navigate a price increase. While some minor customer churn should be expected, keeping these best practices in mind will keep it to a minimum, resulting in long-term success and happy customers.

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Matt McAllister

Matt McAllister is the CEO of Fluid PR, Inc. and twenty-year marketing veteran. Matt most recently ran marketing for Tapjoy, a mobile ad-tech platform. Matt also served as VP of marketing and content for High Voltage Interactive, an online ad network that was acquired by Aptimus, Inc. He started his career as an account executive for the PR agency Niehaus Ryan Wong.

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