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BusinessColumnistsJamie Herzlich

How to raise prices without losing customers: ‘softly, slowly’

Netflix CEO Reed Hastings speaks at the consumer

Netflix CEO Reed Hastings speaks at the consumer electronics show in Las Vegas in January. Netflix is gradually raising prices for some existing customers this year. Credit: AFP / Getty Images / Robyn Beck

Many businesses worry that if they raise prices, they’ll lose customers.

While that’s always a risk, sometimes a price increase is unavoidable.

When that time comes, doing it strategically and maintaining an open dialogue with customers can help take the sting out of a price adjustment.

“Generally every business ultimately has to raise its prices,” says Marshal Cohen, retail analyst with The NPD Group, a Port Washington-based market research company.

Take Netflix, for example, which made headlines when it announced it would be raising prices for some existing customers this year.

To be sure, price increases can be a hard pill to swallow, so it pays to “do it softly, slowly and methodically,” advises Cohen.

Rather than making sizable increases, it softens the blow if you increase prices in increments, he notes. For instance, a $1 increase might make customers hesitate less than a $2 to $5 hike.

Keep in mind that the business-to-consumer market has a lower tolerance for price increases than the business-to-business market, where the products or services customers buy (for example, sales training) could have a lasting positive impact companywide, he notes.

Whatever you’re selling, “you’ve got to be able to clearly express the value in a way the customer understands it,” says Jeff Goldberg, president and lead sales trainer for E Center Training & Development in Melville, which offers sales training and outsourced sales management services.

He increased his prices on his training services about six months ago.

“At some point it becomes unprofitable to keep your prices the same,” explains Goldberg, who hadn’t raised his prices in 11 years. Since then, his expenses have dramatically increased, and he ultimately had to explain that to existing customers.

“Most people understand,” he adds, noting he hasn’t lost any customers as a result.

It’s crucial that businesses understand it’s not all about price, but rather about the perceived value you bring, notes Goldberg, co-author of “Leverage Your Laziness” (Sound Wisdom; $9.99).

Consider why people are willing to pay more for Starbucks coffee, says Dr. Dileep Rao, a clinical professor at Florida International University and author of “Bootstrap to Billions” (Interfinance Corp.; $29).

“Starbucks changed the rules of the game,” he notes. At first they weren’t just selling you coffee but “renting” you a seat in a coffee shop where you can meet friends, he explains. Then people got so hooked on the coffee that they’d buy the coffee regardless, says Rao.

Consider how you can change the rules by rethinking what you’re selling, he says. Don’t just ask yourself “How do I raise my prices?” but rather “How do I add value?” and “Who is willing to pay for that value?” Then adjust your business along those lines, he notes.

Also consider what market segment has a higher willingness to pay and serve that segment, says pricing expert Mark Stiving, author of “Impact Pricing” (Entrepreneur Press; $20) and an instructor with Scottsdale, Arizona-based Pragmatic Marketing, a product management training firm.

Companies should always set prices based on what their customers are willing to pay, he notes.

And keep in mind prices are customizable.

There are lots of ways to charge different people different prices, says Stiving. For example, create two tiers of a product or service and call one elite and one basic.

You can also phase in price increases as Netflix is doing, rolling out price increases gradually this year.

“They will raise your prices a different day than they raise my prices,” says Stiving, noting that Netflix is being much smarter than a few years back, when it raised prices dramatically and lost customers.

In some cases, particularly online, you can always experiment with a price increase to see how consumers react, says Cohen.

“Don’t be afraid to try it,” he says.

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