How to Raise Prices

With the economy in the state it’s in and the price of energy going up, a lot of companies are making some tough pricing decisions. Their costs are going up, squeezing their margins. Also, they are worried that if they don’t take a price increase now, they are going to be leaving a lot of money on the table. At the same time, their customers are feeling the pinch.

This topic has got some attention on the blogs.

• Geoffrey James over at BNet offers 3 methods to Raise Your Prices and Keep Your Customers. I disagree with method #1, opening up your ledger, but the concept of using price increases in your supply chain to justify price increases to your customers is legitimate. Note that customers don’t actually care about your costs, but the increases in your costs mean that the costs of competitive products are also going up. This doesn’t help as much with indirect competitors. For example, airline price hikes based on fuel costs are reasonable because all the airlines are facing the same issue, but they don’t work as well against online collaboration software that could substitute for a trip.
• John Quelch at the Harvard Business Review provides Seven Tips for Managing Price Increases. A couple of these tips stand out. Unless you understand the value you provide, it’s hard to price well. And unbundling is a great way to pass on a price increase to those who value your full offering while reducing price (and your costs) for those who only want part of your offering. For example, you might increase prices by 10%, but offer a 15% discount for customers who can schedule delivery 2 weeks in advance.