Inflationary pressures in the UK show little sign of receding. This creates a dilemma for startups: higher wage costs and other expenses are likely to eat into margins, but it may be hard to predict how customers will react to increased sales prices.
It is important, therefore, to think carefully about your pricing strategy – and consider approaches that might make price rises more palatable.
1. Understand the value of what you're providing
"A customer's willingness to pay is rooted in the outcomes or benefits your product realises for them," says Jenny Millar, founder of Untapped Pricing (link to https://untappedpricing.co.uk), a marketing consultant. "There may be functional, emotional or social benefits, and you need to know what they are. Is it about driving tangible results that can be measured, such as more leads, sales or saved time? Or are there emotional, social or intangible benefits too – such as peace of mind or risk reduction?"
This analysis can help ensure price increases align with the value that the customer attaches to what you're selling. Jenny adds: "The key to understanding value is talking to your customers. Ask customers and prospects what they value most, what your product enables them to do, how they'll know what success looks like and what's changed recently. A powerful question for existing customers is 'What would happen if we took this away?'."
2. Base pricing decisions on facts, not assumptions
"You'd be surprised how many times I've heard people say, 'Well the price just looked high so I brought it down a bit...'," Jenny says. "Don't make assumptions about what your customers value or what they're willing to pay, particularly during economic distress or recovery." Instead, she recommends businesses base their assessment of value on the facts or evidence they can obtain – through surveys or conversations, for example – rather than their own biases or assumptions.
3. Use the power of bundling
When referring to pricing, bundling is the practice of bringing a number of separate but related products or services together under a single umbrella and charging a single price. As Jenny puts it, this means "pricing the cake, not the ingredients".
The advantage of this approach is your customer is more likely to focus on the outcome of their purchase rather than a list of individual prices. She adds: "This, in turn, heightens the perception of value which unlocks their willingness to pay."
4. Cut the risk of raising prices
However you present it, there is always a risk that increasing prices might alienate some customers. That is why it's important to de-risk your decision by gathering as much data about the potential impact of a change on your revenues. "Establish the volume of customers you can afford to lose and prepare for how your team will handle any pushbacks on price," Jenny says. If possible, trial any new pricing strategy on a subset of customers before rolling it out to the whole of your client base.
5. Communicate – but don't apologise
Finally, Jenny says, keep your communications about any change in prices clear and specific – and focus, if possible, on the value you offer. "We see so many companies over-justifying their decision or taking an apologetic tone," she adds. "Customers are surprisingly resilient to change when they value your product and understand your communications."
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