How will your business survive amidst surging inflation and increased costs for energy and raw materials?
How will you ensure customers buy your products and services when they need to spend more on almost everything? Right now, these questions are top of mind for you and other business leaders. Unfortunately, most factors that contribute to inflation are out of your control. However, there are a few key strategies you can leverage to mitigate the consequences of inflation.
1. Rethink your value proposition
More than ever, a clear, targeted value proposition is mission critical. To reach customers in a time when they are hesitant to spend, you need to address their specific needs and desires, which requires having deep insights about them. Without this understanding, it’s impossible to highlight the value that your offering provides. To dig deeper, conduct customer focus sessions or interviews to understand what they value most and why. Leverage the following process to structure how you rethink your value proposition.
- Customer Understanding: Know your customer better than anyone else and appreciate the difference between customers.
- Customer Segmentation: Gain a solid understanding of the segmentation process. Segment your customers based on your customer understanding.
- Specific Value Proposition: Develop segment-specific offerings based on customer insights. Create segment-specific value propositions.
2. Redesign your pricing approach and strategy
Amidst high inflation, price is a sticking point for customers – but increases are often necessary for the longevity of your business.
When considering price increases, ask yourself, what do we want to achieve? Your pricing approach and strategy depend upon how much of a price increase you can afford. Do you want to gain market share with your premium brand? Do you need to defend against a private label? You must consider these questions when rethinking your pricing strategy because price increases should not jeopardize your overall strategy.
Regardless of which path you choose, use insights you’ve gathered about customers as you reevaluate. Your pricing should reflect the benefits of your offering.
Depending on your customers’ price sensitivity, their reaction will be different. Consider these factors when redesigning your pricing strategy:
- Customer’s income statement / financial status
- Customer’s willingness to pay
- Customer’s industry and product segments (necessities vs. luxury goods)
- Availability of alternative products and substitutability
However, your price increase shouldn’t be too moderate (< 2%). An increase needs to be worthwhile and secure your margin, so you don’t have to raise prices too often.
3. Communicate your price increase
Raising prices without a thoughtful communication strategy can backfire and harm your relationships with customers. Remember, your customers are also facing higher prices for almost all goods and services, so be sure sellers are equipped to approach the situation with care.
Create a compelling story that sellers can use to frame the price increase highlighting the value your customers will receive when purchasing your offering. What additional benefits will they receive at this new price? Why should they be willing to pay more?
As part of the story, sellers should only plan to mention the increase in input costs as a secondary factor. But, if higher input costs are the reason for the price increase, sellers should not be afraid to communicate this. Transparency counts.
Decades of psychological studies have proven that calling it what it is – a price increase – and avoiding euphemisms is important to customers. Sellers will often call it “price update” or “price adjustment” because they are afraid of customers’ reactions. However, customers value authenticity and honesty more than diluted messaging.
Another important factor is time. Since your customers might need some time to adapt to your increased prices, the earlier sellers communicate, the better.
In summary, before communicating the price increase to customers, be sure your sellers are prepared to do the following:
- Create a value-first storyline without neglecting external factors
- Avoid euphemisms and let customers know what they can expect
- Communicate in a timely manner
Whether you’re restating your value proposition or adjusting your prices, collecting feedback and insights from customers enables you to build trust and serve them better. This is especially critical during inflationary periods when price can be sensitive and communicating changes must be approached with consideration and care. However, putting in this additional work will be rewarded with steadfast customer loyalty even if price increases persist.