It’s that time of year when you are looking at next year’s pricing. Your operating costs are rising, you need to give your great team a salary increase, and your suppliers of products or services are increasing their prices. There are probably also market shortages driving prices up across the board.
These price increase notices can be fraught with emotions and pushback from your customers. Dissemination of this information needs to be managed very carefully. My advice is to do it early and don’t beat about the bush on the messaging. Clear and concise phrasing – call an increase and increase. Don’t use euphemisms such as price adjustment or price changes.
Try to increase your prices only once a year, base the increase on actual increases you are getting from your suppliers plus a view on how inflation is going. It’s not an exact science unless you have contractual clauses governing annual increases with your customers.
There are various ways of handling price increases, but it all depends on your product and whether you have contractual agreements in place. Let’s examine a couple of these:
Consumer goods – ad hoc purchases: Your business manufactures products you sell to the end consumer or to a wholesaler. Via an online portal, in a shop, via delivery service such as Grab Food, Amazon etc. You could be a taxi service and need to increase the start price or airport fee supplement.
Services – Managed contracts: For this, you are offering your products or services via a subscribed delivery service. For example, you have a pest management service, meals on wheels, a garden maintenance service or long term car rental/leasing. You are offering a repeat service at a fixed price for a fixed period of time.
APPROACHES:
If your customer buys ad-hoc from you with no ongoing contract you might not need to announce price increases. The price of your artisanal cheese or the jewellery you make will in most cases not need an increase. If you are selling petrol or milk across the country, then you will need to announce the price increase.
For maintenance contracts or long term leasing contracts including house rental contracts, you should always have an annual price increase clause that states that you reserve the right to apply an annual increase to the contracted services. In many cases, these are fixed in contracts and linked to CPI (consumer price index) index for your country. Sometimes it’s set as CPI + 2% (or more) especially on long license agreements that run for say 7-10 years. If your contract is an annually renewable contract, then you need to have a clause in the contract that the current price is not guaranteed at renewal and that you reserve the right to increase it at the time of renewing the contract.
For residential rental contracts, many countries have specific rules on when and how much you can increase the rent by. It’s important to ensure, that your contract is in line with local legislation.
Some tips on the increase-notification process:
- Tell your team first, and make sure they understand the need and can articulate it well
- Tell your customers directly – send them a mail
- Tell them more than once – people don’t read mails, forget they got it
- Tell them in good time, so they have time to research alternatives and feel they are in control
- Tell them in short concise and understandable sentences what is happening
- Tell each customer segment in wording specific to their relationship with you
- Tell them where they can get support for the price increase, FAQs, email even a person
People will get upset. so it’s important to have mapped out the communication channels and messaging, to segment the messaging to your customer groups. Equally important is to help your team to respond with the right tone and message to customers.
Take control of the process and don’t leave your response to feedback up to chance.
If you are not increasing your prices, turn the message around and communicate this news to your customers.
Lone Andersen
Talk to me if you need help with deciding on your price increase policy and/or how best to communicate your prices.
LAN Business Consulting 