Increases in costs — whether in labor, product materials or overhead — sometimes require you to increase your prices in order to make a profit. Raising prices should be handled carefully, or you risk losing customers to cheaper competitors. Here are a few ideas for pricing products wisely:
Explain Up Front
For businesses where a price increase is immediately noticeable, explain your decision to customers. For example, if raising prices will help your business expand services, cover rising overhead costs or improve products, explain this and thank them for supporting your business. Post a sign near check-out or include this message in your email newsletter. You might also train your employees on how to candidly answer customers' questions if this issue arises in your location.
Spread Out the Increase
Instead of sharply raising the rates on some products, spread increases around on many products so the effect is gradual. With a broad enough mix of products, customers may be perfectly willing to pay a few more dollars at the register — if they even notice. You may also try to spread out minor increases over time, with a six-month lag between gradual price bumps. That will give customers a chance to adjust to the increase without having sticker shock.
Reduce Size or Quantity
Another strategy is to keep your prices the same, but decrease the size of each unit sold. You might currently sell a set of glassware at $120 for eight glasses; decrease the number to six but keep the $120 price tag for the group.
This pricing strategy allows your customers to buy various products together for a lower total price — in this case, you're not raising prices, but you are likely selling more units. For example, a clothing retailer can sell complementary products like a men's dress shirt and tie at a slightly reduced, bundled price.
Charge for Add-ons
You may not need to change your price tags at all. For example, if your business normally sells chaise lounge chairs for $299.99 apiece with free shipping included, you can keep the same price of $299.99 and add a $15 shipping charge instead. Depending on price threshold, your customer base may be able to tolerate this type of price strategy rather than a direct price increase of $314.99 that includes free shipping.
Add to Your Product Offerings
Consider adding new products to your mix. Do this carefully, selecting products that match your brand and complement your current offerings. Include some low-cost products to give price-sensitive customers more options. You might also add a few luxury or high-cost goods. Oftentimes, having a luxury good on the shelf provides an effective contrast to the mid- and low-cost products, making them look like a comparative bargain.
Pricing products can be tough, and increasing prices adds an extra element of difficulty. Look at your products and pricing history and try different strategies that may help cover costs without sending customers elsewhere.