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As the world emerges into a new era of consumerism, prices for all goods and services have leaped thanks to a 40-year record inflation increase. In 2022, alone, the consumer price index rose 9.1 percent.
In our studies, we’ve found that about 80 percent of business revenue comes from existing customers. Because of today’s record-high inflation, businesses can’t just increase prices for new patrons. They first need to figure out how to have pricing conversations with existing clientele.
A year before the pandemic, we did some research into pricing and found that loyal customers would be supportive if the company told the customer that it would absorb some of the cost and share the remainder in the form of a price increase.
Having open, transparent and respectful conversations with customers about why the business increased prices led to more understanding and willingness to continue the relationship with a greater level of loyalty.
Netflix’s recent price change is a prime example of this phenomenon: Although the streaming giant knew its price increase would upset many, it also knew it could convince loyal customers that cutting costs and boosting revenue would allow the service to grow and improve sustainably, thereby giving patrons proof of purchase.
Whether you’re a large company looking to ride the wave of higher costs or an entrepreneur just starting out in this rocky environment, learning how to broach the subject of pricing is invaluable to your success. That’s why we developed a framework called the Why Pay More Message.
Related: Four Ways To Give Your Customers Value
“Anchoring” impacts and sharing sunk costs
The former term is a behavioral concept that describes people’s tendency to be “anchored” by the first piece of evidence heard, even if they hear more compelling (or contradictory) information later.
You can apply this phenomenon by starting with the benefits the customer has experienced and the outcomes you’ve seen together. This will serve to solidify their support and influence how they react to future information. If the anchor is positive, they’ll be more inclined to respond positively to subsequent points, even if the points involve less welcoming changes (such as price increases).
Showing progress at the start of a Why Pay More conversation is a great anchoring move. For example, describe how enrollment in the customer’s employee benefits program has gone from 20 percent to 50 percent during the last few years of the partnership. Motivate them by showing how much progress they’ve made toward their goal of 80 percent enrollment. They’ll be more likely to think positively if their initial impression is one of progress.
Follow that up with a review of the investments you and your customer have made up to this point. The psychology of sunk cost suggests that people will be more inclined to continue to invest if they have before.
Say the patron has invested in a piece of software that promises to help them do their job more effectively and the software has long-term benefits. If they haven’t tapped into those benefits yet, they’ll likely invest more into the software rather than regressing back to square one.
Related: 7 Ways to Have a Difficult Conversation Without Losing Your Client
Celebrating new things while justifying discounted increases
Talk about some of the new things this price increase will offer, (i.e., a helpful addition or benefit they’ll be able to apply to their own business).
United Airlines has found that when they raised the price of their club memberships—and wrote to members about how the new lounge spaces would be upgraded—the response was wholly positive.
Speaking of positivity, the most successful way to introduce a price raise is to present it alongside a discount.
Tell your clientele something along the lines of: “We need to let you know that the price of this solution is going up 8 percent, but since you’re a loyal customer, your cost is only going to increase by 4 percent.”
By anchoring with a larger number before a discount, you can be perceived as rewarding customers for their loyalty.
As higher costs and competition abound, you can gain loyalty from your followers simply by being transparent. Involve them in your price changes, anchor them with positive information and remind them of the relationship you’ve built together.
