Adjusting to Inflation—and Increasing Prices—Without Frustrating Your Customers
Inflation has put a squeeze on businesses across almost every industry, as well as every consumer. With the 2021 calendar year ending with an inflation rate of more than seven percent, both consumers and businesses are grappling with rising costs, reduced purchasing power, and smaller margins of error when managing cash flows and budgets.
From materials to shipping to labor, your business is likely facing increased costs across many different types of expenditures. At the same time, your customers may be more reluctant to open their wallet: retail sales in December 2021 declined by 1.9 percent, delivering a financial blow during what is normally an important window for seasonal sales.
Given the risk of customers spending less simply due to their decreased purchasing power, your business may be wary of increasing prices and reducing your sales revenue even further. Yet with inflation pushing your operating costs higher, it’s inevitable that many businesses will have no choice but to increase their prices and protect their profit margins.
If you’re facing a similar crossroads and are unsure of how to proceed, read on for some tips on how to make this decision—and how to break the news gently to your customer base.
Signs It’s Time to Raise Your Prices
For businesses feeling the strain of inflation, choosing the right time to raise prices can require you to consider not just your current profit margins, but also the larger market you work in and your relationships with customers.
While every business must consider its own unique circumstances, here are some signs your business might be ready to increase prices in response to inflation:
- Your increased operating costs show no signs of letting up. If you’ve talked with suppliers and shipping companies and believe those increased costs will continue indefinitely, a price increase may be inevitable.
- Your revenues aren’t able to cover your expenses. If your current costs have wiped out your profits, or are causing you to lose money on your sales, this is an unsustainable circumstance that must be addressed through a price increase.
- Your competitors have recently increased their prices. Rate increases among other businesses is a sign that your business may need to follow suit. Similarly, businesses may be less concerned about a mass exodus of disgruntled customers if rival brands are making the same decisions.
- You are struggling to keep up with demand for products and/or services. If your current workload is difficult to keep up with, raising prices could help you improve your profit margins while also reducing and managing this workload through customer attrition.
- Your business has so far avoided increasing its prices. If your business has delayed any price increases in spite of months of rapid inflation and rising operating costs, you can feel good about your effort to keep prices consistent for your customers. Even if customers become frustrated by a price increase, you can point to your efforts to put off this change for as long as possible.
How to Announce Price Increases to Your Customers
While some businesses may be able to slip subtle price increases past their customers, many businesses will be quickly outed by customers who notice that prices have been raised. Rather than make these changes and hope your customers are none the wiser, it’s often better for businesses to get ahead of this reaction and proactively respond to any anticipated customer reactions.
Many experts recommend transparency about the reason for these price increases. This can be particularly effective given how familiar your customers will be about inflation and its impacts. They have likely already noticed inflation affecting many aspects of their daily lives, and while the news of your price increases may not make them happy, they may be more likely to understand if given a clear explanation.
Consider offering data points to help justify this decision: highlight the percentage increase in shipping costs and other data that illustrates the rising costs your business is facing. Your most loyal customers are unlikely to leave your business if they believe the story behind your price hikes.
Tips to Temper Customer Frustrations Over Price Increases
If you’re worried about customer backlash to your planned price increases, consider taking additional steps to curry favor among customers and support retention.
Possible strategies to ease customer frustrations include:
- Introduce additional price levels and/or service packages. If you sell services as part of a tiered package, consider adding new options to help keep your services within your customers’ budgets. This may include cheaper, basic tiers and/or higher-cost “premium” tiers that offer an excellent customer experience at a higher price—and a higher profit margin for your company.
- Roll out a new-and-improved rewards program. Accelerated rewards earnings rates and better reward options may help incentivize customer retention and overall spending.
- Make targeted price increases rather than across-the-board hikes. If certain products or services are experiencing greater costs than others, your business could respond by setting price hikes only where necessary to preserve your profit margin.
- Announce price increases ahead of time. Rather than shocking customers when they head to checkout, reveal your planned price increases ahead of time, giving customers a heads-up to let them stock up on products—or at least to prepare for the higher cost they’ll have to pay.
Price increases can be a source of worry for businesses that don’t want to alienate their customers. But even as inflation and other market forces create an urgent need to account for rising costs, remember that price increases are inevitable for any business that manages to enjoy a long run.
Looking for help in crafting messaging that will improve customer engagement and customer loyalty? A digital advertising partner can help you develop and deliver the right messages at the right time. Contact us today to see how we can help.
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