03/ 05/ 2008
by Tamara E. Holmes
Inflation and the rising costs of business often make it necessary to increase prices. While it's easy to introduce new customers to new rates, some business owners may feel hesitant about raising prices on longstanding customers for fear that customers will react by taking their business elsewhere. But there are ways to make a price hike easier for regular clients to bear, so they are rewarded for their loyalty and your business earns the money it deserves.
Provide an explanation. No customer wants to feel taken advantage of so it's important that longtime customers understand that a price increase is necessary for the viability of the business. Explain that the costs of running the business have increased since the last price hike and also make sure customers know that your rates are still competitive with the competition. A letter sent to customers could provide this information, as could a sign posted on the premises of your business before the increase takes effect.
Raise rates gradually. The last thing you want to do is surprise your customers with an immediate price hike. Instead, let regular customers know ahead of time when and how much prices will increase, giving them a chance to make adjustments to their budgets. Let longtime customers know that you appreciate them by allowing them to adjust to the new rate gradually over time even if new customers are already paying the new prices.
Offer subscription discounts. If you offer a regular service, tell customers they can pay the old rate if they agree to pay a subscription fee for your service or pay for multiple months in advance. Not only will the customer be saving money, but you get the benefit of locking in sales for the next several months. The advance payment could also improve the cash flow at your business.
Create customer loyalty rates. If you have some customers that have patronized your business for a long period of time, consider offering them a special rate that's higher than the current rate but lower than the rate new customers pay. This system won't likely work in a business that sells products or one in which it's difficult to justify different prices for different customers, but if you offer a service in which rates are negotiable, this is one way to reward those customers who have been with you the longest. However, it's important to be consistent with your policy. Come up with a formula for determining how much time a customer must patronize your business in order to qualify for the customer loyalty rates.
Offer alternative services. Not all business price cuts are across the board. Sometimes business owners will cut prices on certain products and services due to changing market conditions. If you are raising prices only on certain products and services, let longtime customers know that they can pay a lower price for alternative offerings. While alternative products and services might not be suitable for all of your customers, they may appeal to the tastes and the wallets of some.
While some of your most loyal customers will appreciate the effort you make to ease a price increase for them, others may decide the price is just too high for them to continue to do business with you. As a business owner, you must be prepared to outgrow some customers who might not be able to stay with your business as it moves to the next level. While no one wants to see customers leave, focusing your energy on marketing your business can help you attract new customers to fill that void.
