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Balletta: The Art and Science of Raising Prices

Raising prices in a financial planning session is easy. One plugs a new number into the financial model you built in a very complex excel spreadsheet — and volia — all is perfect in the world of finance. Revenue is magically increased with zero repercussions from the market or the consumers, and business proceeds as usual.

Netflix
CNBC.com
Netflix

Not so in the real world. As we saw recently with Netflix, raising prices without careful consideration and transparency can lead to backlash and loss of customers.

If the Netflix controversyteaches us anything, it’s that raising prices is always a precarious thing. Companies need to be careful as they enter the minefield of price increases.

It’s not easy — no matter what the finance guys say. So here are four tips, based upon my experience in sales and tech start-ups, to help navigate those troubled waters both internally and externally:

Get Sales Force “Buy In”: If you’re in a business environment that has a sales force — more importantly one that is commissioned — get their “buy in” on the price increase. You will never win all the hearts and minds but it’s a great place to start and explain the economic drivers for the price increase. Not everyone will understand, but what I find is that the first refuge of an underperforming sales person is that the product or service is “priced too high.” Keep that in mind at the next quarterly review; you will undoubtedly hear it.

Over Communicate: Treat your customers and employees as you would want to be treated. Let them know as soon as it is possible about the price increase and explain to them the reason for it. Once again, you will not placate everyone. People understand that underlying costs for producing products and services increase and that sometimes these costs need to be passed on.

Give People Options: People like to have control over their own destiny; they also like to have choices. Present customers — especially existing customers — with some type of package or option that lets them lock in their current price for the services. This might require also committing to a term or buying additional services. Give them an option; make them part of the decision making process.

Increase value: If you are going to increase prices make sure you are increasing perceived value. Assuming you have done one, two, and three above, make sure your customers understand the increase in value. Give them something for their money. Add features or functionality to your product or service offering in conjunction with the price increase. Most important, sell the value. People value their money and want value in return.

For all the common sense these steps represent, I’m forever amazed at how frequently companies don’t think to take this approach when raising prices. Netflix has admitted its mistake, but at what cost? Think about how simple it could have been for them to avoid this debacle all together by properly communicating with their customer base. It’s a hard lesson to learn but one we can all avoid with a little bit of science and a lot of artful communication.

Nick Balletta is CEO of TalkPoint, an industry leader in global communications technology. With more than 25 years of experience in media and technology, he is a pioneer in the field of unified communications and interactive webcasting.