It's January, which means an influx of people at the gym, sweeping declarations for big life changes, and a whole lot of companies sending emails about their prices going up.
While it may feel like a coincidence that these things arrive with each turn of the calendar, there's a psychological reason for it. Wharton professor Katy Milkman and colleagues have dubbed it the Fresh Start Effect. We humans feel compelled to make changes with the new week, month, quarter, or year. This effect also comes into play with milestone birthdays--people are much more likely to run their first 5k or marathon at age 39, 49, or 59 than at 41, 51, or 61.
And while sending gifts at the same time as everyone else is often a bad strategy, great news for everyone who didn't get around to sending gifts this holiday season, blending in with the crowd and raising your prices at a time it is expected can be a great approach.
That being said, you aren't guaranteed to fly under the radar. Plenty of businesses get it wrong and find themselves with upset customers and backpedaling on reasonable price increases. Here are three common price-increase mistakes to avoid at any time of year:
1. Trying to explain why you 'had to' raise prices.
These are all the messages like, "We haven't raised our prices in 12 years, but due to inflation and the rising costs of our vendors..." insert eye-roll here.
While your brain is wired to feel like you need to explain the decision, this makes the communication about you when it should be about your customer. In general, people don't care about you and what you have been struggling with--they care about them. And the longer the communication is before you get to the price increase, the worse it is because that anticipation is making them think "Wow...this must be really bad if they are going to all this trouble..." Your overjustification is more likely to turn people off or make them upset than it is to help you.
- Easy Fix: Make the message about them, not you. What do they care about? What if it wasn't about the price? It is very possible that your customers don't even remember how much they are paying you, so you might be paying a lot of attention to something they aren't focused on. Find ways to showcase your value to them and get them excited about the future.
2. You didn't raise your prices high enough.
Now, I know this one may have you confused, but hear me out. Because raising prices can feel scary, it is common to implement the least possible increase. The problem is this myopic thinking can lead to multiple increases over time, and when those come too close together it can anger customers and make them more likely to leave you.
- Easy Fix: Take the time to plan at least one year out. Is there anything that would make you need to increase your prices again that you should include now? Or does it make sense to delay and align this with new features coming later in the year? In my work, I have found that most people aren't charging enough for their products and services--especially those in small to midsize businesses--so you can probably increase more than you think. And, good news, research shows people value things they pay more for, so be open-minded.
3. Immediately hedge with a discount.
When you're worried about the reaction to a price increase, it is common to offer a discount to offset it. More often than not, I see people use this as a crutch so the discount is more about making them comfortable with the new price than it is about the customer wanting/needing a discount.
- Easy Fix: Get anyone who is selling comfortable with the new price before they have to start saying it to customers. Your confidence is the most important thing when it comes to price integrity. The goal is to be able to say the price like it is the time of day or the weather. Don't jump to discounts to make you feel more comfortable. Instead, try this: imagine you sell water bottles. They are currently $8 each and the price is going up to $12 each. That can feel hard to communicate when your mental anchor is at $8. So, imagine you had to charge 10x more tomorrow. Once you plan through how you could sell them for $80 tomorrow, $12 will feel like a breeze.
If you're wondering, "Should I raise my prices?" the answer is probably "Yes." Now that you know the mistakes to avoid, you can confidently sell at whatever new price you land on. Happy selling!
EXPERT OPINION BY MELINA PALMER, KEYNOTE SPEAKER AND HOST OF 'THE BRAINY BUSINESS' PODCAST@THEBRAINYBIZ
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