As of March 31, 2022, inflation in the United States stands at 8.54% — the worst it has been in close to 40 years. Obviously, that figure has massive implications for businesses of all sizes, and several business owners are faced with a question that's every bit as uncomfortable as it is pressing: What do we do about our prices?
Inflation product pricing is a tricky, nuanced process — how do you keep pace with inflation without alienating prospects and customers? To help you address those issues and concerns, we've put together a guide with tips for fair inflation-driven pricing and advice on how to communicate inflation price changes to customers.
Tips for Fair Inflation-Driven Pricing
Comprehensively reevaluate your pricing strategy.
Adjusting prices for inflation is more complex than looking at the overall inflation percentage and increasing all of your prices to fit that figure. It's a much more nuanced process — one that requires tact, strategy, and a comprehensive reevaluation of how you price your products.
You want your inflation-driven pricing to be fair, but the concept of what's "fair" rests on more than some all-encompassing, one-for-one peg to economic trends. "Fair" is a frame of mind — it's a matter of prospect and customer perception.
Your base's overall willingness to pay, the preferences of customers who leverage specific pieces of your product suite, how your competitors are adjusting their prices, and shifting capacity constraints all play a role in shaping your inflation-driven pricing strategy.
For instance, let's say you sell a conversation intelligence platform that offers three plans — one for small businesses, one for midsize businesses, and one for large enterprises.
You might find that the companies who subscribe to your mid-tier plan have the willingness and flexibility to spend more in a rougher economy than your lowest-tier subscribers. You might also notice that the competitors who cater to your enterprise-level clients are raising their prices particularly aggressively to compensate for inflation.
In that case, you might raise prices for your mid-tier and enterprise-level plans at higher rates than you would for your low-tier one.
The point here is that there's no one-size-fits-all model for how prospects and customers respond to inflation — so if you want to raise prices fairly and effectively, you need to account for those differences.
Try to identify other, non-price-related ways to compensate.
Just as you would with your pricing strategy, you'll want to comprehensively reevaluate other elements of your operations and product suite — like design, packaging, and distribution. You should always explore different, non-price-related ways to compensate amid inflation.
Taking actions like looking for different suppliers, reevaluating how you ship your products, and experimenting with more cost-effective packaging — among several other alternative shifts you can make — can help you mitigate costs and, in turn, minimize the need for inflation-related price increases.
Obviously, making significant changes to how you produce and distribute your offerings is easier said than done — but if you're concerned that your potential price increases will alienate your base and radically undermine your profitability, you need to at least look into those avenues.
Consider tinkering with any discounts you might offer.
In many cases, a "discount reduction" comes off as less imposing than a "price increase." If you want to thoughtfully and effectively address your pricing during inflation, you should start by auditing the discounts you're currently offering.
Tinkering with existing price docks and promotions gives you some cushion when trying to avoid radically increasing prices. As I touched on earlier, "fair" is more of a frame of mind than a matter of fact.
Prospects and customers can be inherently loss-averse and reactionary, so seeing prices rise often sets off enough alarms to make them jump ship. If prices remain relatively consistent but discounts take a hit, they're less likely to get skittish — even if both options essentially amount to the same result.
How to Communicate Inflation Price Changes to Customers
Springing any kind of price change on customers is inherently uncomfortable — even if there's a viable reason behind those shifts. And while adjusting prices for inflation is a more legitimate excuse than some arbitrary price hike, you still need to handle the situation with tact, empathy, and thoughtfulness.
Make sure your entire organization knows you're raising prices.
Before you let any of your customers know about your price increases, you need your entire organization to be on the same page. You wouldn't want a frontline employee from your sales or customer success team to charge or promise a customer the wrong price.
You need to brief your whole organization on every aspect of the price change — the price itself, the logistics, the cost difference, the rationale behind the hike, and the messaging they should be using to convey the news.
Give advance notice, and contact your customers directly.
You don't want to change prices for customers without giving them fair warning. If your business is subscription-based, your customers shouldn't find out about your price hike when they look at their bank statements at the top of the month.
Always send a price increase letter, detailing the change. If you can, try to address those messages to customers directly — adding a personal element to the news.
Be frank about why you're increasing prices.
If customers raise concerns about your price increases, be frank about the situation. Let them know that prices are shifting to keep pace with economic circumstances. Transparency will help your case. Raising prices without providing any rationale for the decision comes off as sleazy and unprofessional.
As I said at the beginning of this article, inflation product pricing is a challenge that's every bit as uncomfortable as it is pressing. Your business might not be able to maintain its current pricing structure through this kind of economic turmoil — but you don't want to undermine the relationships you've established with customers and scare off prospects.
You're going to be faced with a host of difficult decisions and may very well have to consummately reevaluate several aspects of how you do business. Still, if you approach the situation with tact, strategy, critical thought, empathy, and adaptability, you should be able to adjust your pricing appropriately and effectively.