If the past few years have taught us anything it is that nothing stays the same forever. The COVID pandemic has shaken most businesses to the core. It has been followed in short order by increased global political and economic stresses and regulatory and policy settings domestically which have significantly impacted on input costs. In that context, ‘something has got to give.
Everywhere we turn, it seems price increases are the norm right now. Turn on the news and almost certainly there will be a story about the cost of living and how it is affecting our communities. Blame is laid on external factors (the war in Ukraine, and COVID being the current favourites) and on internal, domestic policy settings depending on who you listen to.
What is certain, however, is that for business owners the past several months has created what some are referring to as the ‘perfect storm’ – rising input costs, significant labour and raw materials shortages and a sense that the coming 18-24 months may not see things get much better. If anything, sentiment has tended to be lower than for a considerable time.
Now is NOT the time to ‘hibernate’ and pretend you can bury your head in the sand. As with all challenging times, the flipside of the coin will be opportunities for those who are prepared.
How you communicate the news is just as important as the increase itself. Provide clients with detailed information, address questions and concerns, and reinforce your value as their chosen service provider.
- CONTACT CUSTOMERS DIRECTLY
‘Treat others as you’d like to be treated’ is a truism for good reason. No one wants to find out about a price increase by surprise. Imagine arriving home and your local council has left a letter for you telling you – out of the blue – that your rates are up by 20%. How would you feel about that? If you are like most people, the chances are you will get pretty annoyed and look to use your vote come the next municipal elections!
In the same way, when you need to tell your customers about a price increase do it directly. Ideally, personalise your communications. Whether it is email or a letter, or even better a personal phone call. Go through your database of customers, identify what the impact will be for each one and then tell them - and wherever possible have a conversation. Don’t hide behind email…
- COMMUNICATE EARLY
Always use a policy of ‘no surprises’. When things are changing, the best way to get ahead of the issues is to do it quickly. Whilst it is absolutely true that you need to think before you act, in today’s world speed is your ally.
Honour your clients by providing them with plenty of time to come to terms with the price increase. They may need to re-assess their budget or consider alternative options, so keep them in the loop as soon as you can. If the increase is not going to kick in immediately, encourage them to make one or more product orders before it does.
With enough time to prepare, you will be better placed to retain customers because they will be better able to accept and adapt.
Keep communication short and simple. The last thing you want is for your customers to get annoyed with you. Loyalty and trust are two things that are hard to earn but easily lost. There is no need to over-explain, or to apologise. Be clear, be concise, be available to answer any questions.
- FOCUS ON QUALITY AND VALUE
Focusing on price is a fool’s game. To succeed in business, always focus on the value you create. That way both you and your customers can see the return on investment you are getting. It removes the pain of paying more and replaces it with the understanding that you are still getting a ‘good deal’. There is a simple equation to keep in mind:
Gain = Value – Cost
When you increase your prices, make sure the value is clear. Sometimes, the need for a price increase can be confusing for customers. It is vital that you stress the importance of product and service quality. People don’t mind paying, typically, if they can see the value they are getting. Make sure you tell your customers that you are committed to the same or even better service and products, which is the reason for increasing prices.
Even better, explain your roadmap to the future. A good example of this is United Airlines in US:
“To provide a more productive and relaxing experience, we’re investing more than $100 million in renovating existing locations and building new spaces with expanded seating areas, more power outlets and upgraded Wi-Fi. We’re also investing in a brand-new complimentary food menu that you can now find at most of our hub locations across the U.S. and will be available soon at the rest of our locations.”
To be sure, most of us aren’t in the $100m bracket, but the illustration is valid at all levels of business!
Make sure you are 100% customer-centric and a value narrative — a vivid and compelling story for why the price is being increased that focuses on their value. In short, WIIFT – What’s In It for Them! Think about these questions as you prepare:
- What has changed about your services that provide additional value?
- Have you done extra training, developed new skill sets or hired specialists?
- Have you expanded your service offering?
- Are there benefits that your company offers that currently aren’t documented in your quoting or estimating process (such as technical support, extra resources, increased availability or shorter turnaround)?
- BE OPEN AND TRANSPARENT – CALL AN INCREASE AN INCREASE
Your customers are smart. Don’t obfuscate or use euphemisms in communicating an increase. It is common to try to hide price increases as ‘updates’ or ‘adjustments’ because people are scared customers may react ‘badly’. It may seem like a small thing, but there is plenty of research demonstrating that attempts to obfuscate bad news rarely pay off for brands. People appreciate helpful, transparent, and informative communication.
Authenticity and honesty matter. Euphemisms don’t fool customers, they only make them suspicious, often because they perceive it as being talked ‘down to’. If you are tempted to go down the euphemism route, then it is a little like the Bob Newhart skit – STOP IT! (Caution: This skit is pretty blunt. No offence is intended. Watch at your own risk…)
Call a spade a spade and let your yes be yes and no be no.
- BE CLEAR ON THE REASONS AND THE DETAILS
To emphasise that you're raising the prices to maintain the quality of your products and services, explain what caused the price increase. After the size of the price increase, the perceived fairness of the motive for it is the second-biggest driver of how customers react. Right now, materials shortages, a very tight labour market and overall price inflation are well recognised. Customers may not be ‘happy’ to get a price-increase letter but explaining things openly will prove your willingness to be transparent.
Telling your customers that you can only continue to provide the current level of benefits if you raise the price – and you choose to do so rather than degrade your products and services - is a powerful argument. It reinforces your values to the customer. Think of a couple renewing their wedding vows – it reminds them of why they started the relationship in the first place.
Remember, details matter. Clarity is power. Consider including the following information in your communications:
- When the price increase takes effect.
- The exact price that will be reflected on their next bill.
- What happens for jobs that are currently in progress?
- What happens for customers that are currently on a promotion or being offered a special price?
Don’t be afraid to share data. Know and share the increased cost of materials, the cost of labour or the expense of complying with new regulations. If it’s been a long time since your last price increase, share that with your customers, too.
- ALIGN INTERNALLY FIRST
Consider all the stakeholders in your business when communicating price increases – employees, customers and suppliers. Inform each department to help minimise impacts on their day-to-day operations. Make sure you avoid creating confusion for your customers – for example by your sourcing and purchasing departments and your marketing department not being ‘on the same page’!
Your team serves your customers. They are the frontline troops and you are the general directing operations. To be effective, all of your people need to know and understand and be able to articulate the reasons for the price increase. Having a consistent message and ‘voice’ is critical, because winning teams are ones which have a unified sense of purpose. In this case, that purpose is to keep on delivering consistent, high-value service. It would be embarrassing for a frontline worker to accidentally charge a customer the wrong price, or to not know that things have changed when they arrive on site and that that may affect the customer’s behaviour. All of your team should all be on the same page in terms of the cost difference, the reasoning, and the logistics moving forward.
Depending on the size and complexity of your business, prepare an internal ‘Frequently Asked Questions’ document that addresses questions or concerns you expect will come up for some customers. Invest the time now and the clarity you gain will pay itself back ‘in spades’. Provide your team with the FAQs document ahead of time so everyone is able to provide a great customer experience by responding to questions quickly and consistently.
- REWARD LOYAL CUSTOMERS
Similar to focusing on value and quality, building loyalty with customers is always vital and never more so than right now. It doesn’t have to be complex or expensive. Communicate a sense of gratitude and appreciation and be thankful for their understanding. These have been tough times for everyone, so be authentic and ready to tell your customers why you genuinely value them.
You’ve got this!