How to Talk To Your Customers About a Price Increase
The Reality of Increasing Prices
Most businesses are confronted with disrupted supply chains, indexation, and a shortage of raw materials. Consequently, profit margins are under pressure. Many companies have withheld transferring higher costs onto their customers, but time has run out and prices must increase.
Because of this, sales leaders must be able to position themselves for this change by developing a clear plan for delivering price increases to customers while preserving the relationship.
This requires a unique strategy that involves:
- Having a strong understanding of the common biases that could influence a customer’s perception of the price increase and decision on the sale.
- Outlining a clear plan for communicating a price increase to your customers.
- Leveraging a trading strategy, if needed, during conversations about the increase.
1. Understanding Common Biases of Customers
Purchasing decisions are not purely rational psychological, social, and emotional factors all have an impact on decision making.
Because of this, the way sales professionals pitch a price increase must take into account the common biases that can influence customers’ perception of an increase and the decision they make in relation to the increase.
Loss aversion shows us that the disappointment people feel about losing something is much greater than the joy they get from gaining something of the same value. In short, the pain of losing $100 is more intense than the joy of gaining $100.
Because people prioritise the certainty of what they already have above all else, sellers should remind the customer of the certainty they get from continuing with your solution even if it is at a higher price. Make clear, that if the customer rejects the higher price in search of a lower cost, they are exposing themselves to the uncertainty of another provider who is likely experiencing the same economic pressures.
Research from MIT psychology professor Dan Ariely shows us that an individual’s decisions can be influenced by a single piece of information, known as an “anchor.” Often, this “anchor” is the first piece of information a person receives, from which they then compare all subsequent information to.
What your customer anchors onto during your price increase conversation can impact the person’s opinion of all future information they receive.
When communicating and positioning a price increase, it’s critical to consider the use of an anchor that most benefits your argument. Examples of effective anchors include market research showing the elevated costs of similar solutions, higher operational costs in the seller’s business, and even the absence of price increases until this point.
Scarcity bias tells us that people will associate more value to a product or service that is considered scarce. Therefore, sales professionals may be able to tie a price increase to the scarcity of resources available and show that the new, higher price ensures availability despite economic disruptions.
Learn more about how behavioural science principles like these impact the sales process and how the right training programme can prepare your team to successfully navigate these common biases.
2. Outlining a Clear Plan for Communicating a Price Increase
Positioning a price increase can be a challenge. The customer might object to the new price. The relationship might become strained. Sales professionals must be able to enter the conversation with confidence. Doing so means having a clear plan for the conversation.
A formal plan does more than define a path to success for the individual sales professional, it also enables sales leaders to apply the same strategy across a diverse group of sales professionals.
The most effective plan for delivering a price increase consists of three parts: preparing for the conversation, notifying the customer of the price increase, and engaging with the customer’s response.
Each of these three parts contains a specific set of behaviours.
As sales professionals prepare, they need to conduct research on market trends and the competitive landscape. They must also analyse the strengths and weakness of their solution and gain clarity on the intended outcome of the meeting.
When positioning the price increase to the customer, the sales professional should take deliberate steps to set the context for the increase while reinforcing the relationship and explaining the rationale for the change.
When engaging with the customer’s response, the seller must neutrally acknowledge any objections. A neutral acknowledgment does not mean agreeing or disagreeing with the customer. Instead, it means letting the customer know that their objection has been heard. This is a valuable opportunity to (re-) shape perceptions of value so that the customer can understand why the higher price is warranted.
3. Leveraging a Trading Strategy if Needed
Sometimes a trading strategy is needed. When a sales professional engages in trading, they are giving something away and getting something in return. Trading is more complex than simply giving to get. Implementing an effective trading strategy means knowing what to trade when to trade, and how to trade.
The most important part of this strategy is to never trade on price. Instead, consider other trades without falling into one of the most common traps in a negotiation: making a concession. A concession occurs when someone relinquishes something and receives nothing in return.
Knowing What to Trade
Never trade on price when positioning a price increase. Knowing what to trade means knowing the value of what is being traded. Before negotiating, a sales professional needs to fully understand the intrinsic and extrinsic value of every aspect of the commercial terms. This information is needed to determine if what is received in return is of equal or greater value.
Download our Negotiation Give-Get worksheet to help you plan out the value of what you are willing to trade during the negotiation
Knowing When to Trade
Knowing when to trade means spacing your trades in increments to make their value more perceptible. Presenting trades in a cluster gives the appearance that several trades are in fact just one. This diminishes the impact. Additionally, breaking up the trades allows the sales professionals to deliver them in order of decreasing value.
Knowing How to Trade
Knowing how to trade means using specific, intentional language that exudes confidence and clarity. The customer needs to be able to easily understand what the sales professional is offering and what is expected in return. If they cannot understand the proposed trade, they will become frustrated, and the already taxing experience of negotiating will intensify.
Develop a Plan for Delivering Price Increases While Preserving the Relationship
Learning how to effectively position a price increase gives sales teams the skills and confidence to increase profitability from existing contracts in a rising cost environment.
In our programme sales professionals learn how to prepare for the customer conversation, how to deliver the price increase, and how to respond to the customer’s reaction.
Most importantly, the Positioning a Price Increase Training programme leverages the powerful principle of learn-by-doing with live role-play exercises that allow sales professionals to pressure test their skills. Positioning a Price Increase enables sales professionals to go from concept to conversation in just two short training sessions. Contact us today to learn more.
Get industry insights and stay up to date, subscribe to our newsletter.
Joining our community gives you access to weekly thought leadership to help guide your planning for a training initiative, inform your sales strategy, and most importantly, improve your team's performance.