Q&A: How to Raise Prices on Current Customers
Question: We have customers who we have identified in a segment that have a higher WTP. How do we transition them to higher prices when they have been paying another price? Nicholas
Answer: Hi Nicholas. Not an easy question to answer but here are several tactics you should consider.
Give them a warning. Tell them that you’ve raised prices, but because they’ve been such a great loyal customer you are going to hold their price constant for a year. Then, when a year goes by, raise their price. This is what Netflix did on their second price increase after they learned a harsh lesson on the first one.
Move only a few customers at first and see the response. How many of them leave you? Do they buy less? You may detect different patterns based on different market segments which could guide future decisions. If you lose too many, don’t do the broader price increase. It’s a financial calculation once you have the data.
If you have a SaaS type product, don’t raise the price, but stop adding new features to their current level of subscription. If they want the new features, they will need to upgrade to a new version. That way it is their choice and they will hate you less.
We say this a lot in this blog, but remember, when you raise their prices you invite them to rethink their decision. Even if they are willing to pay the higher price, we are asking them to rethink. What if some buyers, if they rethought their decision, would stop buying even if you didn’t increase the price? Increasing their price is a sure way to lose that customer.
One way to avoid some of this, only raise prices on the customers who use the product the most. If you have a way to monitor usage, those who use it the most get the most value and are least likely to drop you when you raise the price.
Think about a gym membership (where 80% of subscribers don’t go). If the gym raised the price a little on everyone then many of the ones who never go will cancel. However, if they only raised the price on those that worked out every day, those people would probably think it’s still worth it.
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.