Many businesses are afraid to raise their prices because they fear losing customers.  

We all can agree that seeing an increase in the price of our favorite product or service is annoying, but there is also a risk in not raising prices at regular intervals. First, your business’s profitability can decrease when inflation and costs grow and the real price shrinks. Second, the perceived value of your product or service can actually decrease, as the real price diminishes over time. 

What Should We Do Instead? 

Instead of risking your business, price reviews should be done regularly. While they should reflect any cost increases due to production costs, inflation or interest rates, they should also reflect improvements in the content and quality of the service or product. 

Point 1. Incremental Increases Deter Less Customers than Huge Hikes 

Imagine this: you are reading a book in the afternoon. When you start reading, there is enough daylight to read comfortably, but at some point, you realize that it’s now dark and you can’t see. 

We know from psychology that small sensory changes are less noticeable than large ones. When daylight slowly decreases, you don’t notice it as easily as when turning lights on and off. People react to price changes the same way.  

Research has shown that people typically don’t react to price increases that are 1-5% of the product or service value. Thus, it’s easier to get price increases successfully accepted as several small increases rather than as one large increase. 

Point 2. Justify the Price Increase 

It’s always important to be able to justify the price when asked. Buyers typically find these reasons for price increases acceptable: 

1. Cost increases that are directly linked to production. These could be, for example, cost increases of raw materials. However, cost increases due to management salary increases are not typically found acceptable. 

1. Global crises and inflation cause insecurities. We all read about them in the news and understand the uncertainties that these can cause in production. 

1. Improvements in product or service quality or content. Increases in value should also reflect as increases in price. 

Point 3. A Professional Buyer’s Job Is to Question Your Price 

In fact, if no one questions your price, that is a good indicator of a problem in your pricing strategy. In that case, it might be useful to rethink it. You can find useful tools and strategies to support your pricing decisions from our services. 

When the price is right, you should lose a few customers. You shouldn’t be afraid of this. It’s normal to lose customers sometimes. The product or service will never be a perfect match for everyone in terms of content and quality. While a customer might blame the price, it’s in fact a mismatch between quality and value for the buyer that is the problem. There are also ways to make your prices look cheaper to your customer.