In this inflationary period, a key management question is simple: When do we raise prices?
In enterprises, the ‘voice of the customer’ comes directly into discussions. The reasons for raising prices are easy to find – numbers and metrics compute. The objections to raising prices for inflation, after a long stability or in industries used to price-performance improvements, are also easy to find. Sales, marketing, customer service, and other customer facing voices will all object to raising prices (especially now).
These voices need to be evaluated with a conjectured ‘reasonable customer’ in mind. Customers never want their price/performance to be lowered by higher prices. Raising prices is never a discussion that sales and marketing want to communicate. A ‘reasonable customer’ discussion is often different than the ‘wants’ of enterprise communicators. Customers can be reasonable and agree to ‘New and Improved’ or ‘Family size’ or ‘New Green Packaging’ disguises of price increases in a value discussion. Stakeholders inside and outside the enterprise are affected by how the communication is done. The credibility of communications to stakeholders (especially ‘reasonable customers’) is most important.
Customers know what the economics are doing to business. When confronted with charges for previously ‘free’ that are valued many reasonable customers will say, “It’s only fair and we’ve gotten a good deal for no cost before”. This is especially true if not all customers require the ‘free’ and the value is higher where the increases will occur. Customers who understand the enterprise’s value proposition are better customers – and are ‘reasonable customers’.
For costs affecting customer acquisition, and especially those which are barriers to sales (installation or deployment fees), a simple internal tactic is to put a budget in place for sales and marketing to spend where “when it’s gone, it’s done” logic will apply. This tactic incents closing sales sooner (and lowering the work to gain customers) while keeping a control on perceived costs. The revenue increase will help and there’s the opportunity to communicate clearly about value instead of focusing on costs.
There are specific issues with communicating the value proposition to key customer types. For customers relentlessly pursuing better pricing (continuous improvement) this is a great time to reevaluate supplier assumptions about costs to deliver those customers – and make improvements. For customers locked into long term contracts the value of services, customer support, or global deals can be looked at afresh. Enterprises need to look at informal ‘add-ons’ or ‘deals’ in place and not fully priced. Critically, adjustments can be made to economic order quantities in view of changed logistics costs be executed that reduce transaction costs for all parties while adjusting pricing. These are usually not new issues and reevaluating assumptions and communications is timely. The specific issues for customers are key to good customer relationships and so communicating effectively is critical.
The answer to the question “When can we raise prices?” is sometimes harder to fight out internally with stakeholders than in front of actual customers. It creates new work – unpleasant communications. Those communications can be opportunities to tell the value proposition story in a clear way to the most desirable customers – reasonable customers.
If you need to raise prices, and you are concerned about internal as well as external pushback, set up a time with a senior analyst at EkaLore to hear about effective approaches. www.ekalore.com/contact
Comments