Rob Fenn
Rob Fenn explains why businesses needn’t shy from raising prices, with tips on justifying increases.

If 2013 was a testing year for your business, then the concept of raising your prices to win new business may sound plain bonkers. However, Rob Fenn at the British Assessment Bureau has some ideas on how you can increase your profit margin without sacrificing customer numbers.

Even if you feel it’s justified, raising prices is something businesses often shy away from because they’re scared of alienating customers they can’t afford to lose, leaving them vulnerable to competitors. However, an easy way of increasing your margins is to launch a new or revamped version – the idea being it has been improved, justifying paying a little extra.

Whilst you’re reviewing your product or service range, take a look at your competitors’ too. It’s much easier to increase pricing when you manage to make your range less directly comparable. Whether it’s the bundling of services, offer 24hr aftercare, or provide free updates, consider improvements that add value for your customers without burdening you with major costs.

Providing choice

Another route is to strip back your product or service, a strategy famously used by car dealerships. In this situation, prices are set low to get people interested, with the profit being made on the options and accessories that most customers invariably specify.

With this strategy, you overcome the initial challenge: catching a prospective customer’s eye. However, by emphasising the benefits of features your product or service provides, they will start to look beyond purely cost and consider the value of your offer.

Apple’s iPad provides another good example of how you can maximise both customer numbers and revenue by providing choice. Of course, the iPad isn’t just one product, there is an entry-level version, a ‘better’ version, then one with all of the bells and whistles you could ask for. From Apple’s point of view, it means they can cater for the price sensitive, whilst customers already bought into the brand have an opportunity to jump up to the more expensive version, purely because they want to know they have the best option.

A frequently used pricing strategy also works in Apple’s favour. With the jump from the ‘better’ and ‘best’ not being as much as the entry-level to ‘better’, customers will find it far easier to justify going for the most expensive option than if there were only two choices.

Let your customers work for you

If you think it’s time to increase prices, you must have belief in what you do, and so must your current clients – so make the most of them! Testimonials, case studies and videos featuring clients help to build reputation and a desire to choose you over others. Ultimately, people are willing to pay more for what they believe is the best choice in the marketplace.

Would you be willing to pay more for an award-winning product or service? Of course! There are numerous regional, industry and nationwide awards that you could be eligible for that could massively increase your appeal. All will expect you to demonstrate how exactly you deliver a great service or product; customer feedback is important evidence to show that you’re the best in your field.

Cutting costs through efficiency

Operating inefficiently causes mistakes which require re-work to fix. Not only does this cost time and money, it could over the longer term affect reputation and customer retention figures.

As companies grow, ‘growing pains’ are frequent, typical, but also avoidable. The key is to have everyone singing off the same hymn sheet, teamed with an effective management team who work hard to ensure staff are trained well, listened to, and know how to do a good job.

There are frameworks such as the ISO 9001 quality standard which are aimed at helping organisations create a culture of transparency and continuity so everyone knows who does what, when, how and why. Not only does this prevent further frustrating mistakes from happening, but the idea is that – if accidents do happen – the reasons why can be found and fixed.

From time to time, it’s important to also review your overheads. As years roll by, supplier relationships can get a little too comfortable – do you still know if they are competitive? Now you’re bigger, could you benefit from economies of scale? There could now be alternatives that are not only cheaper, but are able to provide added value too. Any savings here help the bottom-line without sacrificing the quality of your product or service.

Honesty is the best policy

If, for example, you run a small consultancy business, some of these suggestions may not make sense in the context of what you do. As such, the personal approach may work better – simply talk your clients through the reasons price increases. If you have strong relationships, the chances are clients will understand that you need to charge more if it’s a case of the costs being brought into line with the rest of the market and your level of expertise. Likewise, if you need to invest in improvements that will reflect positively in the delivery of your service, gaining support shouldn’t be too difficult.

If you’re having trouble convincing some, this is where price differentiation techniques can come in to help. You could provide a cheaper service, with fewer benefits to encourage customers to realise they are best sticking with what they’ve got, or offer a better rate for an improved service before it is rolled out to the masses.

Whilst all of the above suggestions have been proven in various markets, there is of course the risk some ideas can backfire. That’s why it’s so important to measure the results and pick the right time for experimentation, so consider how your company is affected by seasonality and resources in case it goes wrong or right (where resources then may become an issue).