Increasing costs in industries and products often result in narrowed profit margins for entrepreneurs. As a result, businesses typically have to raise their prices to offset this mounting pressure. However, when prices increase month after month, customer satisfaction may start to dip. According to Kirk Jakich, the president of Iris Pricing Solutions, “Customers are facing price increase fatigue… they’ve had enough, and they can no longer handle blanket price hikes; you need to look for other solutions.”
Jakich adds, “Targeting price increases carefully and communicating them clearly can ease the pain customers feel.” So, the key question is: how can businesses increase prices effectively, and what should they avoid, especially with regulators focusing more on fees and additional charges?
Raising Prices with New Deals
Matthew Higgins, a partner at Preston’s: A Burger Joint in Columbus, Ohio, shares a valuable insight. When the cost of one of the ingredients used in their signature sauce doubled, the restaurant began sourcing hot peppers for its sauce. However, soon after, the cost of peppers tripled as well. Faced with these escalating costs, Higgins says the restaurant raised prices by approximately 7% on average—but that doesn’t mean they increased all prices by exactly 7%.
While the price of the burger may have risen, side dishes became more affordable when purchased as part of a combo. Higgins explains, “People are highly sensitive to price, so we have to keep our pricing competitive.” Furthermore, he suggests, “If you’re concerned about the long-term impact of price increases, you can adjust them temporarily to account for cost shocks.” For example, during the spike in egg prices in 2023, some restaurants temporarily raised prices on dishes that contained eggs. Similarly, shipping companies have regularly adjusted fuel surcharges in line with fluctuating fuel costs.
Higgins’ consistent message to consumers is: “If you truly enjoy something, you should support it, or else it will disappear.” This reflects the idea that customers are more likely to tolerate price increases if they feel invested in the product or service.
Avoid Overcharging Through Fees to Prevent Raising Prices
One pitfall businesses must avoid is using hidden fees to make up for price increases. Customers often feel deceived by opaque charges. For example, in the United States, there have been plans to take stronger action against unwanted fees on everything from event tickets to college textbooks. As of July 1, California banned “drip pricing,” which involves advertising a price without including mandatory and additional fees.
David W. Wright, a lawyer at Pillsbury Winthrop Shaw Pittman LLP in Los Angeles, states that California’s law is designed to target high-cost service fees on products and services, such as concert tickets and hotel rooms. However, he clarifies that the law doesn’t prevent businesses from recovering these costs; it simply mandates that businesses disclose them upfront so consumers know exactly what they’re getting into.
Therefore, businesses should include handling fees as part of the advertised price, while shipping costs and reasonable taxes should be disclosed separately. Wright further advises, “The safest way to protect yourself is to include all pricing within the posted price.” This approach fosters transparency and trust, ensuring customers feel informed and valued rather than misled.
The Art of Transparent Price Adjustments
Successfully increasing product prices without losing customers often depends on how transparent the process is. As Jakich emphasized, clear communication about why the price increase is happening and what it covers can go a long way in alleviating customer frustration. For instance, restaurants or businesses can explain that the price hikes are a direct result of rising ingredient costs or market fluctuations, making it clear that this is a temporary measure to ensure the continuity of quality service.
It is also essential to offer customers an option to ease the impact of price hikes, such as introducing new packages or promotions. By bundling products, offering loyalty discounts, or including extra value, businesses can soften the blow of a price increase, making it feel less like a burden and more like an enhancement to the customer experience.
The Psychological Aspect of Pricing Increases
Price increases also have a psychological component. When consumers perceive a price hike as justified, they are more likely to accept it. The key is to position the price change as a natural consequence of external factors beyond the business’s control, such as inflation, supply chain disruptions, or increased production costs.
In addition to this, businesses should focus on delivering value that justifies the higher price. For example, if a service is slightly more expensive than competitors, emphasize the unique benefits that customers will receive. Whether it’s superior customer service, high-quality ingredients, or exceptional product performance, these factors can make customers more likely to see the price as a worthwhile investment.
Avoiding Over-Price Fatigue
However, businesses must also be careful not to overwhelm customers with frequent price hikes. While an occasional price adjustment may be necessary, consistently increasing prices without substantial improvement in value can lead to customer fatigue. To avoid this, businesses should carefully evaluate whether each price increase truly adds value to the customer experience and the overall product offering.
Additionally, engaging with customers about their perceptions of value through surveys or feedback forms can help gauge how much a price increase will impact loyalty. This proactive approach can also provide insight into whether customers feel the new price is justified.
Increasing product prices while maintaining customer loyalty requires a careful balance between transparency, value, and communication. When done thoughtfully and strategically, businesses can adjust prices to reflect rising costs without alienating their customers. By offering new deals, being upfront about fees, and ensuring that any price increase is accompanied by added value, businesses can navigate the delicate process of price hikes and sustain customer trust. Always remember, the key lies in how you make the customer feel valued and respected during the transition.
