Raising prices is never something a business looks forward to. Even the smallest, most easily-justified increases will receive some customer backlash, especially in economically challenging times. Yet, from time to time, organizations find themselves with no other choices other than to raise prices. So is there a “less painful” way to raise prices and communicate it to customers and prospects?
As with just about any marketing-related decision, the decision to announce a price increase deserves to be focused around a plan to help minimize customer pushback, cut customer churn, and mitigate bad stories circulating about the way your price increase was handled. So how’s the best way to go about it?
Following are a few considerations that might help customers better swallow an impending rate increase. 
1. Be transparent. If there are legitimate reasons why you must increase prices (and most times there are), be clear about them. Cost of materials going through the roof? Transportation costs eating you alive? Let customers know. Make that information readily available on your web site. Arm sales people with information they can share with their clients. Script Customer Service Reps so they’re able to share this with customers. Give customers plenty of notice. And be as empathetic and specific as possible. Don’t fall back on corporate-speak or lawyer-approved boilerplate pap to justify an increase. Instead of saying “Due to the fact that our costs have gone up, we’re forced to raise prices,” try being just a little more human: “Over the past few years, our cost of materials have gone up 64%. While we’ve found ways to increase efficiency and have held the line on prices as long as we could, we’re now in a position where we need to raise prices. Through efficiencies we’ve enacted, we’re fortunate enough to only have to pass a percentage of those costs on to you, our valuable customers. While we understand our 20% price increase may not be easy for some of you to absorb, please understand we are doing all we can as an organization to optimize efficiencies and control costs.” There. Customers might not be happy about a price increase. But at least they understand why.
2. Point out the value that your customers are getting from you, or better yet, use the event of the price increase as an opportunity to help them get more value from your services and products. It’s human nature to feel somewhat dissed when you get charged more but are not getting more. A key role for every marketer should be to help customers get the most value out of your products and services as they possibly can. Ideally, this is an on-going process that allows for plenty of user feedback and contribution. An example of one company that used this as an opportunity is Comcast. While research shows cable subscribers generally limit their viewing to ten or fewer networks, Comcast delivers in excess of 200 different networks. Therefore, it’s safe to say there’s a lot of content Comcast delivers that you’d like, but you haven’t discovered yet. So to help customers get more “value” from their service, Comcast can curate that content, and recommend viewing options based on your personal preferences. Delivering communications such as “If you like ‘Sex And The City’ on HBO, you owe it to yourself to check out ‘Mistresses’ on BBC America” elevates Comcast from strictly being the “pipe” that delivers media to being a partner that is helping me get discover new favorites.
3. Be clear about the business reasons—and the consequences—involved in a rate increase. This past week, Netflix announced a whopping 60% price increase to their core DVD-by-mail + video-streaming service (from $9.99 a month to $15.98 per month). Apparently, Netflix executives didn’t anticipate how much flak from customers a 60% rate increase would generate. Reportedly only 30% of callers who tried to reach the company by phone were able to speak with a Customer Service Rep. And the Netflix blog post announcing the new pricing structure has already reached its 5,000-comment limit. This from a company that up to now was seen as being a very customer-centric organization. A 60% price increase, no matter what your category, is a game-changer, and there’s no excuse for the company not anticipate that. The “value quotient” has changed so radically, there is no accurate way to predict the net results of that move. While the justification for the increase has been muddy at best, one could speculate that the company is finding the DVD-by-mail part of their business more expensive to operate than the video streaming portion. If this is the case, Netflix could have used the specter of an impending price increase to actually add new users. Once the decision was made to raise rates, they could have made the new rate applicable to all NEW accounts, effective 90 days in the future. They then could have promoted the fact that for a limited time (90 days), new subscribers can get the “grandfathered” rate (winning over the “fence-sitters”), and remind existing customers they get to keep the grandfathered rate, while utilizing tactics to move more of them to online streaming.
By employing a little creativity to the process, Netflix execs could have achieved their goal of creating more revenue while stemming churn and reinforcing its position as a category leader, instead of sitting back and hoping 1/3 of their customers don’t decide to take a powder.
Bottom line, if a rate increase process is planned for like any other marketing initiative, an organization will likely suffer fewer lost customers, less bad press and fewer bad stories that make their way across the Internet.
