You Need A Reason To Raise Prices

Face it, people hate price increases.  You probably hate them when you are the buyer.  Purchasing agents at large corporations get bonuses based on how big a discount they get.  Price increases directly impact their bonus.  Obviously they don’t like them.

If you raise your price for the simple reason that you want to make more profit, people will hate you.  Maybe a little harsh, but think about the grocery store during a natural disaster that raises the price of bottled water from $1/gallon to $4/gallon.  People only buy it if they have to, and they despise the grocer for taking advantage.

However, it is possible to raise prices if you have a good enough reason.  The most common and obvious reason is your costs increase.  Although purchasers may not be happy, they accept the price of gasoline goes up when the cost of oil increases.  Remember the blog “Chocolate Rising – Price Increase at Hershey’s“?  Hershey was announcing a price increase and blaming the price of sugar.

However, there are other reasons besides cost increases.  This past week there was an article in “Inc” magazine “How I Got Started” which tells the story of how Robin Chase, Founder of Zipcar, had miscalculated their costs early on and had to raise prices if they were going to survive.  She wrote an honest forthcoming email to her customers explaining the predicament, apologizing, and telling them zipcar had to raise prices by 25%.  She received 21 responses and only 2 were complaints.

What is great about this story is it shows that people are willing to accept price increases for the right reasons.  Besides cost increases and humble apologies, what other reasons might they accept?  Another one is limited supply and high demand (yield management) like hotel rooms during the super bowl. (This is different from gouging for water during a disaster because people can choose whether or not to go to the super bowl.  They may not be able to choose if they need water.)

Besides increasing costs, honest mistakes and yield management, can you think of other reasons customers would readily accept price increases?  If so, please share them.

Here’s another twist.  You only need a reason to raise prices if you’re going to raise them on people who know your prices.  If you always sell to new customers, then you can raise prices without feeling their wrath.  Just don’t forget you have competitors.

Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author

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Photo Credit: gfhdickinson