Netflix recently angered many of their customers when they announced that they will be raising prices in September. Instead of a modest hike, the prices will go up about 60%. The aftermath has inspired articles such as Ed Stych’s “Time to cut my Netflix plan.”
While customers are never thrilled with an increase in price, there are ways of going about it without completely angering them and therefore losing a number of them. Much of it depends on the type of product or service that your company provides.
Is It A Necessity?
Customers often feel more offended by an increase in price if they feel they need a particular product or service. Even if they can afford to spend the extra amount, they still feel trapped because they don't have much of a choice whether or not they can purchase it.
An easy way to get around this is to let customers know about other similar products or services that are lesser in price and still deliver similar results. You could educate customers through a brochure, e-mail or by posting signs. Feel free to get creative with the alternatives you offer as well. For instance, old floor models, smaller sizes, services that do not include as much or generic brands are a good way to go. Make sure to keep your staff and customer service representatives knowledgeable about the alternative products or services so that they can quickly direct a customer to them, or explain why your service is worth the price hike.
Is The Increase A Surprise?
Even though an announcement of an upcoming price increase may upset customers, as was seen with the Netflix increase, it is still a good idea to inform customers beforehand if you are intending on raising prices. The risk involved here is that they may go out and search for better prices amongst your competitors. Nevertheless, they could also want to buy the products or services that are going up in price before the increase is in effect. In fact, they could even stock up on those products or services and buy even more than usual, which would then be a big win for your company.
Does The Increase Seem Justified?
One of the major points against the Netflix price increase is that their costs technically didn't go up. Meaning, postage didn't go up, and the movie studios are not charging more for the rights to the movies. Therefore, there should be no reason that the prices should increase as drastically as they are.
Make sure to educate your sales staff and customer representatives on exactly why the price is going up. For instance, it could be because your supplier has started charging more for said products, the increasing cost of fuel is driving up the prices for your products, etc.
Be completely honest with the customers, but don’t be afraid to make it a little personal as well. As an example, a sales associate could say that if the prices don’t also increase with the costs then his job and the jobs of his fellow employees would be in danger. Make the customer feel that your company really didn’t have much of a choice other then to increase the prices to stay in business.
Use a Whole New Pricing System
Introducing a new pricing model is always a good way to deflect attention from the fact that prices are increasing. If you can get customers to sign up for a subscription as opposed to a long-term licensing fee. This will require customers to pay less money up front but will actually make you more money in the long run. Also, you could offer a number of different subscription options at varying prices and lengths to appeal to different customers. Each customer’s mindset is different, and what seems like a good deal to one person may not to another.
Maintain Great Customer Service
It’s a lot easier and more cost-effective to retain customers than to find new ones, so make sure you put a lot of effort and money into your customer service department. Expect to receive a lot of calls when you announce that your prices are increasing, and train your customer service representatives on different ways to convince customers to stay. Your company will most likely ultimately end up losing a few customers to a price increase (whether fair or unfair), but with a strong customer service team in place, you can avoid a big drop-off.