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Pricing Strategy

Price increases are traumatic for many business owners. They have no idea how to approach it and often would rather avoid thinking about it.

Increasing prices for higher profits can cause businesses a lot of stress. Business owners worry about staying competitive and dealing with complaints from price-sensitive customers.

Challenge

The pricing strategy of the business was ad hoc at best. The pain of less profit was perceived to be lower than the pain from risking a price change. This lack of strategy was starting to cause a lot of stress.

Solution

We believe business owners develop their business models through their experience in the real world. The pricing challenge is real and is developed from customers complaining about the prices in the past. For us to be successful in building back the confidence and value of fair but firm prices, we needed to address this change experientially – in the real world – with the customers.

First, we collected data to determine the number of customers who were truly “price conscious.” We discovered that it was a small percentage of the customer base. Those who complained about prices tended to receive more attention than the satisfied customers. (In fact, the complaining customers also consumed the most resources.)

Second, we determined that the business was trying to be “all things to all people.” We helped them segment their customers and repackaged the offerings by customer segment. This enabled the business to offer great value to its best customer segment and get paid fairly for it.

While this makes sense in theory, the business owner still felt that they were risking everything if the price increase didn’t work. We would never suggest taking on that kind of risk, so we designed a test to try out the price increase with a small, manageable amount of risk.

Results

The business owner had a longtime good customer coming in to renew a fairly significant contract for the next year. The new contract had a 10% price increase added to it. We coached and pumped up the business owner for the big meeting to position the value and ask for the new pricing. The business owner was nervous but knew the value was actually there and the new price was fair.

The meeting was a big success – the customer agreed to the new pricing without batting an eye! This experience gave the business owner the confidence to continue to test and tweak the prices toward higher profitability.

We understand a business owner needs to experience for themselves to realize the biggest barrier to the price increase is self-created.

Lessons

  1. If you are not segmenting your customer base properly, you are likely pricing your products to the 10% – the 10% of your customers who complain – and giving away too much to the customers who truly appreciate the value of your products and services.
  2. Price changes can be tested to reduce the risks.
  3. Addressing pricing strategy is challenging for every business owner, but avoiding it costs money and allows price-sensitive customers to continue consuming valuable resources.

For every business owner willing to explore if there are any self-created barriers in the way of price increases, we have been able to methodically and confidently identify and remove those barriers, so the business obtains the fair profits it truly deserves.

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