Pass on price increases without alienating customers?


Marc Emmer is chairman of Optimize Inc. and an author, speaker, and consultant specializing in strategy and strategic planning.

Providers are faced with a conundrum: absorb rising costs or pass on price increases. A shocking number of sellers are afraid to pass on price increases, even when justified. Some companies are conditioned to live in a low inflation environment.

Reality sets in. Prices have become dynamic, rising and falling based on current supply and demand. Here are some practices to pass on price increases seamlessly.

Target long tail products.

By-products are less price sensitive than core products. In some cases, it makes more sense to protect the prices of your core products, but increase the prices for ancillary services (this is known as living on the edge of supply). The “long-tail” products are sold in a lower volume and this will reduce the pain for customers. This requires large price increases for small volume items.

Reformulate the business relationship.

Vendors can “protect” their most valued customers by passing price increases on to customers with whom it is more expensive to do business. Or, the prospect of a price increase could spark new conversations with customers about on-time payment, increased lead time, volume purchasing, or other considerations that can lower costs for both buyer and seller.

Use information to build a business case.

There has never been a time in our lives when customers were so willing to accept price increases. Citing well-known government statistics such as the manufacturer price index (up 11% for the 12 months ending April) only strengthens your argument. You can also use other information to defend your case, such as service level improvements or investments you have made in your business to improve the customer experience.

Expand the service bundle.

One way to soften the blow of higher prices is to incorporate small incremental improvements or new services as prices increase. For example, offer to manage customer inventory or adjust shipments or dimensions to reduce the total cost of doing business for a customer.

Charge for speed.

Many carriers are sheepish about charging express orders. But at a time of rising transportation costs and fully utilized capacity, carriers have every right to charge premiums for expedited shipping.

Use alternative pricing strategies.

Some providers will pass on a price increase while passing on a temporary discount. Getting rid of the short-term discount in the future actually works like a price increase. You may offer customers buy-in periods at lower prices in the future, when you have overcapacity.

Others will encourage self-service and ask customers to take on responsibilities that were the carrier’s responsibility in the past.

Maintain and report on your service level.

It is difficult to pass on price increases at times when customers are not satisfied with you. Instead of waiting for customers to score your service level, go on the attack and measure your own results. Performance reports can be packaged to amplify the value your business delivers.

Downsizing (aka “shrinkflation”).

Service providers could take over a page from product marketers, who maintain prices and reduce the filling of their packaging. Honesty is the best policy in this case – be sure to acknowledge the shorter fill.

High level financial insight.

Make sure your sales and marketing teams are trained to handle customer pricing objections. Develop a system in which you recognize and reward sellers who can successfully pass on price increases. If commissions are paid based on margin rather than revenue, merchants are more likely to be partners in this process.

Passing on price increases is an art form that requires tact and timing. It may even be appropriate for C-suite executives to get personally involved in communicating with customers, peer-to-peer.

What not to do

One technique that companies like Uber and Lyft – and many restaurants – use is surcharges. Surcharges are often unpopular, especially since customers aren’t sure if the charges are fair. In most cases, customers prefer that you just increase the prices rather than charge a surcharge. Use supplements sparingly and only when absolutely necessary.

Regardless of how or when you decide to raise prices, be prepared to defend yourself. You need to be able to explain why and combat potential pushback on social media.

Price increases are often unavoidable. With the right preparation and techniques, you can pass on price increases without disturbing your customers. Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?


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