How to increase prices online and still keep your customers
How to avoid the discounting rat race and increase your prices. Use these pricing tips to ensure increases in product prices do not destroy your customers' demand.
Many businesses lower their prices in order to win customers. This is especially true online, where people find cheaper options in just a few clicks. But only driving down prices to woo customers will eventually backfire on your business:
- You attract a group of customers that have weak brand loyalty, or are less likely to purchase from you again.
- You compete with other businesses that can easily copy your pricing, or go even lower. This makes it difficult to maintain your margins and sustain your business.
- It makes it more difficult to invest in new processes, products or infrastructure that improve your business.
- It could leave you vulnerable to sudden drops in demand due to external factors, especially if you don’t have enough cash to bridge over in difficult times.
If price is by far the strongest reason why people buy from you, you should strongly consider alternative, more defensible value propositions. In addition, low prices do not guarantee higher demand. People buy things on value, not on price. A product priced too low may signal to consumers that this product is poor in quality, or a scam.
Let’s go through this solution with a fictional business example: Smashing Fruits Co.
Smashing Fruits is a packaged food brand that specializes in fresh fruit products, selling them through online platforms as packaged goods. These goods cost anywhere within $1-$35.
Ben is the owner, and he wants to increase his prices to improve his buffer against wildly fluctuating food prices. However, he knows that one of the reasons why his stores are so popular is because of the attractive prices he offers compared to his competitors.
Before he touches that pricing lever, he decides to do some research to determine what his customers really think about Smashing Fruits.
Doing your Research
The scope (and cost) of the customer’s problem
What is the customer trying to solve with your product?
What alternative solutions do they have access to?
When is the customer triggered to solve the problem they are facing, and how long does it take for a customer to research and decide on a solution?
After speaking to a number of customers, Ben learnt that many are looking for something sweet but healthier than normal snacks to fill their midday food cravings. Buying them in bulk mostly helps them save costs on shipping. Other customers look to Smashing Fruits Co. to buy food gifts to bring back home or at gatherings. They rarely spend more than a few hours between looking for a solution to making their purchase.
Reaching out to your customers (and even competitor customers) to get their feedback on these questions will give you a strong understanding of how consumers value your products. At this point, not only can you identify if price is an important value proposition for your customers, but also if other value-propositions are not resonating with your audience.
Your historic sales (changes in prices, discounts, prices of similar products in the same niche)
Have you run promotions in the past? If so, how has that affected demand?
Plot the different prices your products have been sold, especially if one product has different prices at different stores, promotions, etc. Knowing how the demand shifts with pricing helps you statistically estimate how sensitive your consumers respond to price changes.
Doing this allows you to estimate how much money you’ll make with an increased price, and at different degrees of increase. This allows you to estimate the sweet spot pricing that maximized revenue.
Your Competitor’s value proposition
How are your competitors marketing their products? How are they then pricing them?
How are their customers perceiving the value of those products?
When searching for competitor items online, don’t just search for the specific product name. For example, if you’re trying to research for competitor items to “Strawberry Chips”, don’t just search “strawberry” or “chips”. Try to think from different customer perspectives of where they would start searching first. A good example would be “small snacks”, or “office gift”.
Back at Smashing Fruits Co., Ben had a look across different e-commerce platforms for “Fruit chips”, most products vary w $1-$40. Taking note at both the average price and price distribution, it’s clear that Ben has room to raise prices.
Note that when considering competitors to your products, it’s also likely that after browsing options available, the customer may choose to buy nothing. Indifference is a commonly ignored competitor to any product. Keep that in mind as you work to address the concerns or issues that your customer faces.
Taking all the information you’ve gathered so far, you can start to piece together a strategy that increases your prices, and keeps happy customers.
Good strategies to increase your product price
Reposition your products
Through your customer research, you’ll find different customers looking to solve different problems, including ones that demand a higher value (and therefore command a higher price). This may require new services or features that your company has not provided before. This is where your cost forecasting comes in handy! See where you can invest into new ways to build additional capability into your business.
For Smashing Fruits Co., this was already happening in their business: a small group of customers were buying higher tiered products for gifting purposes. Ben could explore this value proposition further, and create new product bundles or partnerships to create interesting, healthy gifting solutions.
Tier your products
You can create different product tiers that solves different needs of people. Based on how these needs are addressed, you can increase the prices differently.
In the case of Smashing Fruits Co., they serve a variety of customers: from those just discovering their brand, to long time consumers of their products. Smashing Fruits could create smaller quantity packages and sell them as sharing packs, with the value being that multiple flavours can be sampled in a single product, and shared effectively across many people. Per quantity this price would be increased, but it caters better to customers having this particular need. As such, increases in price would be taken more softly.
Important note: Don’t just make generic tiers (like small, medium and large). Use the research you’ve done to make sure each tier solves the needs of a specific consumer group, even if they are similar.
Time your price increases, and increase cautiously
Choose a time when you’re sure customers are satisfied with your product and its worth. It should not come at the same time when you’re running a promotion to aggressively track new customers.
If you have products flying off the shelf, it’s a green flag that the value you provide to people exceeds its price. At the same time, increasing your prices should be aligned with your customer’s perceived value of the product (in that the price should still be a great deal for them, and should not exceed what they think it is worth). Smaller increments allows you to measure and understand the response of your audience better, especially if this is your first time doing this.
There’s also often a delay between the change in price and the corresponding shift in consumption, even for the biggest brands, so remember to give your products some time to see how people are really responding to the new changes.
I still lost customers in the end!
This is not necessarily a bad thing: your goal is to increase revenue whilst also increasing price. If you managed this price increase successfully, you should not only find healthy increases in revenue, but also happier customers overall.
Customers come and go, even if they like your products. In the process of sharpening the value your business provides, less relevant customers may drop off from your business. To validate if this is happening, do your best to reach out to customers who decided against your brand or stopped buying from you, and get their feedback. It’s better to have a small but strong base of very happy customers than a larger group of them who don’t care too much about your brand.
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