How to Increase Prices Fearlessly

Hey I found this nice article from youngentrepreneur.com and thought of sharing it with you

“Have you ever worked at a business that increased prices?  If so, you were probably bombarded by customer questions and complaints.  Explaining the increase becomes so tiring many just absorb any price increases, preferring to take the path of least resistance.  But what if you learned how to raise prices while avoiding the headache?

Most entrepreneurs who work with consumers have to deal with the issue of price constantly.  As a result, they often become worried their pricing is too high.  But what would you say if I told you most companies price their offerings way too cheaply?

People are willing to pay their perceived value.  If a customer thinks an item that you list at $2500 is worth $5000, they’ll buy it.  If it costs $6000, they won’t.  If it’s $4000, they’ll still buy it but it will take them longer to decide.  If it’s $4500, they will take even longer to decide.  The closer the perceived value is to the price, the longer a prospective customer will take to consider.

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The graph above reflects the value a set of clients place on a hypothetical item that sells for $3000.  Each bar represents the perceived value of the client.  Point A reflects your listed price, and Point B shows the perceived value of each client.  You can see that each client values the item differently: Client 1 might feel the item is worth $6500 and Client 2 might feel it’s worth only $5200.  Yet Client 3 may value it at $5750.

The most price-sensitive client is Client 2 because the bar goes right up to point B without surpassing it.  So B is the maximum you could charge without losing clients, and the highlighted area between A and B is the potential extra profit on all sales you can earn if you raise the price to B.

As Point A gets closer to Point B, your Client 2’s price resistance will increase substantially.  But even if your most price sensitive clients are paying your list price readily without grumbling, doesn’t it make sense that you aren’t charging enough?

Legally, you can’t charge different people different prices for the same thing.  However, you want to adjust the price so it is closer to the minimum perceived value of your customers.
Raise prices easily with the Grandfather Technique

A great technique my firm devised to increase prices while keeping clients content we called the Grandfather Discount.  Here’s what you do:

* Immediately raise prices across the board as needed.
* Notify your current clients that because they’re such loyal clients you’re granting them a grandfather discount under the old rate for six months
* Charge everyone the new price, but add a line item discount equivalent to the price difference for your loyal clients.
* At the expiration of the grandfather period, remove the discount.

That’s all there is to it.  During this grandfather period, whenever your client purchases they’ll see the new item price on their invoice but after the discount they’ll read the same amount they’ve always paid.  They won’t complain about the increase because you’re doing them a favor by agreeing to a grandfather discount so they aren’t paying the new price yet.  But each time they repurchase they’ll be reminded of the new price and they’ll have time to get accustomed.  They’ll subconsciously revise the value upward in their minds over time to reflect this higher price.

After the grandfather period, remove the discount.  Because you’re removing a discount instead of increasing the price, your client will feel benefited, not penalized.  So there won’t be any latent resentment.

Further, because you increase prices right away, any new business will be at the higher price.  So all sales to new customers will add to profit immediately.  You might even find some clients stock up before the price discount expires.  So raise prices if warranted and start making more money instantly.

This simple technique can improve your bottom line rapidly, even in a recession.  What experience do you have with raising prices in your business?  Share with the community in the comments below!”

Source: http://www.youngentrepreneur.com/blog/how-to-increase-prices-fearlessly/

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