Increasing Pricing to Raise Sales

By October 4, 2013Financial

Increasing PricingIt might seem counterintuitive to think that raising prices can also raise sales, but the truth is it is possible. Of course that doesn’t mean you can increase pricing just because you want to make more money. To receive the most benefit out of an increase, you need proper justification.

Companies raise prices every day for a variety of reasons.  Let’s take the airline industry as an example.  Initially, they increased fares because fuel prices went up and it was costing too much money to run their planes. Though consumers weren’t happy about the increase, they understood the reasons; everyone was paying more for gas.

Later the airlines began adding other fees, such as being charged for baggage and paying for better seats. While their profits increased, their services never really changed and this made customers even more frustrated than ever. It is not uncommon to hear people wax nostalgic for the days when flying was glamorous and fun. Now it is a race to get your luggage in the overhead compartment so you don’t have to pay an extra $25.00.

Besides unhappy passengers, the airlines aren’t really suffering from their price increases, because flying is still the fastest and most efficient way to travel. However, a price increase done the wrong way can hurt a company, especially when competitors are offering better pricing and better services.

In certain categories or industries, it is a lot harder for customers to determine whether a price increase is justified, especially when evaluating the worth of a product isn’t always easy. This can actually work to a company’s advantage.

In fact, higher prices are sometimes seen as a positive because, in the customer’s mind, if a product is more expensive it must be better quality. The automotive industry is a good example of this mind set. For example, if you see an Audi Q5 driving down the road next to a Mazda CX5, you will automatically assume that the Audi is the better car because it costs more. In reality, they are two of the most highly rated mid-size utility vehicles on the road, just offered at different price points and marketed in different ways.

The same applies to service providers, like consultants or technology specialists. With so many different types of approaches taken in these industries, it can be difficult to determine who is offering the best price. So, when a customer is unfamiliar with the product or service they are looking for, they are more likely to lean towards spending more because they assume they will get a better product or service for their investment.

Price increases can also serve to signify a greater knowledge or expertise, even when nothing about a company has changed. The perception of a price increase can simply imply that your company is stepping up its game with new services or products, even when that might not be the cause. Though, remember, if later your customers figure out that your skill set doesn’t match up to your prices, your sales may plummet instead of rising.

The best way to avoid the pitfalls of increased pricing and decreased sales is to position yourself and your company as leaders in your field. If the current perception of your services or products is not there, but you want to move in that direction, you must begin to retell your story through brand communication and performance. By determining your company’s unique selling proposition, you can set yourself apart from your competition. As the momentum begins to shift, then and only then, will a price increase be seen as a wise move that will also drive sales.

Remember raising prices isn’t just about increasing sales. It is also means you don’t have to operate on a smaller margin, employees can be paid better, increasing business costs can be managed and even increase the services you provide your customers.


Author Rick J. Stern

Entrepreneur Rick Stern built Xenegrade Corp with a focus on service to educational organizations. With an MBA from Simon School of Business at the University of Rochester and over 20 years continuing education management, his experience provides valuable insight into the needs, demands, and trends of the continuing education market.

More posts by Rick J. Stern

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