How To Pass On Price Increases Without Alienating Customers

Providers are in a conundrum: absorb rising costs or pass on price increases. A shocking number of vendors are afraid of passing on price increases even when they are justified. Some companies have become conditioned to live in a low inflation environment.

Reality is sinking in. Pricing has become dynamic, rising and falling based on actual supply and demand. Here are some practices to seamlessly pass on price increases.

Target long-tail products.

Ancillary products are less price-sensitive than core products. In some cases, it makes more sense to protect prices on your core products but raise prices on ancillary services (this is known as living on the edge of the offer). The “long-tail” products are ones sold in lower volume, and this will reduce the sting for customers. This requires taking on big price increases on low-volume items.

Reframe the business relationship.

Providers can “protect” their most valued customers by passing on price increases to customers who are more costly to do business with. Or, the prospect of a price increase could invite new conversations with customers about paying on time, providing more lead time, buying in volume or other considerations that could reduce costs for both the buyer and the seller.

Lever information to make a business case.

In our lifetime, there has never been a period when customers were so willing to accept price increases. Citing well-known government statistics such as the?producer price index?(up 11% for the 12 months ended in April) only reinforces your argument. You can also use other information to make your case, such as service-level improvements or investments you have made in your business to improve client experience.

Expand the service bundle.

One way to soften the blow of higher prices is if you include minor incremental improvements or new services at the time prices are increased. For example, offer to manage customer inventories or tailor shipments or sizes in such a way that you reduce a customer’s total cost of doing business.

Charge for speed.

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

Utilize alternative pricing strategies.

Some providers will pass on a price increase while passing on a temporary discount. Eliminating the short-term discount in the future actually functions as a price increase. Perhaps offer clients “buy-in” periods at lower prices in the future, at times where you have excess capacity.?

Others will encourage self-serve, asking clients to take on responsibilities that have historically been the responsibility of the provider.

Maintain and report on your service level.

It’s tricky to pass on price increases at times when customers are unhappy with you. Instead of waiting for customers to score your service level, go on the offensive and measure your own results. Performance reports can be packaged in such a way as to reinforce the value your company delivers.

Downsize (also known as “shrinkflation”).

Service providers could take a page from product marketers, who are maintaining pricing while reducing the fill of their packaging. Honesty is the best policy in this case—be sure to acknowledge the shorter fill.

Up-level financial acumen.

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

Passing on price increases is an art form requiring tact and timing. It may even be appropriate for C-suite executives to become personally involved in communicating to clients, peer to peer.

What Not To Do

One technique companies such as Uber and Lyft—and many restaurants—use is surcharges. Surcharges are often?unpopular, mainly because customers aren’t sure whether or not the charge is fair. In most cases, customers would prefer that you simply raise prices as opposed to demanding a surcharge. Use surcharges sparingly and only if absolutely necessary.

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

Price increases are often unavoidable. With the right preparation and techniques, you can pass on price increases without upsetting your customers.

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