Monday, August 27, 2012

Increase Prices with Confidence

A couple of years ago, I was fortunate enough to work with one of smartest and most entrepreneurial women I have met. She had launched her start-up business with what seemed to be the right pricing model at the time, but it had its flaws.

The service involved renting out an asset to its customers on a pay-as-your-go basis. But when the product was not “rented out”, it was still running up expenses: insurance, deprecation and the like. The legacy pricing model did not recoup these costs, and to correct this, every single customer was going to be asked to pay more.

The pricing was easy to fix: lower the usage charges and apply a subscription fee to recoup the costs incurred by the assets. But as with all companies, large and small, the biggest challenge was in the execution, and how to communicate the price change to customers.

All new customers would be put on the new price plans with immediate effect, while a personalised pricing communications strategy for existing B2C and the B2B customers was devised. Existing B2C customers would be sent a personalised email explaining the magnitude of the change, why the change was necessary and the objectives of the price change (the proceeds would be reinvested back into the business).

B2B customers received a personalised visit from the sales manager, who communicated the same message. Both the email and the face-to-face visits all concluded with the same message: “We understand if you wish to take your business elsewhere”.

The company did not lose one single customer. The well-executed pricing communications strategy worked, and within 12 months, revenue and customer numbers were up 20%.

Have the confidence to increase prices if you need to. With a well executed and disciplined pricing communications strategy, you may be surprised not to lose a single customer

[This posting also appeared on the Motivating Mum blog, on the 10th August 2012]

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