Chapter 10. Price Changes

Pricing policies aren’t static.

Costs fluctuate, market conditions change, and our understanding of pricing evolves. Inevitably prices change.

And by change I mean increase.

Prices can go down. Dynamic pricing may even introduce questions for customers when that happens. But by and large, price drops don’t trouble customers.

Increases are more complex.?

The new price may cross over a customer’s WTP threshold or trigger a new evaluation of competitors. And that’s the main question we have when we’re looking at executing an effective price increase.?

Will customers churn?

Best practices tend to fall into three buckets:

10a.?Deciding to Raise Prices

10b.?Communicating Price Increases to Customers

10c.?Executing Price Changes

10a. Deciding to Raise Prices

Raising your price may be as complex as choosing the price in the first place.?

Start by gathering the data that’s easy to get.

• Existing customer behavior—churn.?
• Review notes from any previous price changes.
• Solicit experience and opinions from your executive team. Not every voice is equally credible, but it’s just shortsighted not to capture these insights.
• Expand from your internal team and ask board members, investors, personal networks, and advisors.
• Speak with your Sales and Customer Success team. Are customers happy? Do they complain about pricing?
• Revisit Chapters 1–9.
• Consider the implications of the timing (frequency, current events, etc.).
• Consult any relevant market research you’ve done previously.

Then decide if you need to do some additional research to anticipate customer response.?

Case Studies

In the oughts and early 2010s many well-known print newspapers and magazines were trying to understand what strategy to adopt to support their digital counterparts.?

Back then there weren’t a lot of examples to look to and it was anyone’s guess exactly how consumers would react.

The Economist

In 2011, The Economist bundled its digital web-access edition with its print edition.?

They generated revenue from two sources: advertising and subscriptions.

Ad revenue was going strong, but subscriptions actually lost money.

They contemplated raising their prices to get the subscription side revenue positive. But would customers go along?

Their research concluded:

• Any increase produced SOME churn.
• Churn rates were similar for any increase below 20 percent.
• At 20 percent churn would wipe out revenue gains.?
• An Increased impact was felt over three years. Year 1 saw customer reaction. Year 2 saw revenue growth. Year 3 saw stabilization.

As a result, they settled on a strategy of significant (up to 20 percent) and infrequent (minimum three year gap) price increases.

By executing their price changes in an informed way, they were able to deliver consistent growth for years...

Continue reading here.

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