Nobody likes to see price increases, whether it’s at the gas pump or your favorite local florist. But the reality is, they are an inevitable part of doing business.
Why do you raise your prices? Two reasons:
1) Acquiring Transactions – You may be in a price war and need to adjust your prices to stay competitive.
2) Profit Margin – You may not be bringing in enough per transaction to maintain profitability (the answer here could be a series of thoughts from sales to operations to become profitable, but in this case we’ll focus on sales).
What can also happen – and does so more than any of us admit or even know – is that we raise our prices and in turn hand our customers off to the competition.
Here’s a true story I would like to share to explain how a company is adversely affected by pricing decisions:
I had been going to a new fresh juicing company in town. Everyone there was so nice, the product was exceptional, and the nutrients are unmatched. Being a small business owner myself in a community that I love, nothing makes me happier than the opportunity to support local businesses. I wanted so badly for this company to succeed because they’re doing everything right…except for the cost of their products!
They had a great selection of menu options available to suit everyone’s taste. The problem wais that each product came in a nice 12-ounce glass bottle that they sold for $13 – A BOTTLE! It would be hard to imagine that those prices would suit anyone’s taste!
I appreciate the fact that they use healthy, all natural ingredients, but it’s hard for most people to justify spending $13 on a 12 oz. bottle of juice. You can get a nice lunch at nearly every restaurant in town for those prices.
Unfortunately, it doesn’t look like there’s a way to affordably form a new habit. At over $12.99 a bottle, they’ve effectively inspired me to start juicing on my own! On one hand I really would have liked to become a regular customer, but on the other, if I purchase least one bottle a day, it’s well over $60 a week with no break in sight! Customers expect to be rewarded for loyalty – especially if they feel the price is unrealistic. I found I can do the same thing myself for about $3 a bottle. I enjoy it and can get creative with it too. How much is it worth for the convenience of not having to do it yourself?
So What Can They Do to Retain Customers?
Rewards Club or Frequent Customer Discount Program
One great way to keep customers coming back is by offering a rewards club or frequent customer discount program, but the incentives have to be easy to obtain and the customers have to feel the value. In this case, the business does have a reward club, but the reward is so underwhelming that it doesn’t seem worth it to me. They offer $10 off after each $200 you spend – that’s not even enough for a free bottle of juice!
I obviously like this product and I’m thinking about how I can get it more affordable so I can feel good about going there regularly and not break the bank. I asked if they had a recycling reward for bringing back my glass bottles. Their policy is that they will donate five cents for each bottle to a local charity. I liked the charity donation aspect, but five cents isn’t much of an incentive. It would probably take at least 50 cents or $1 to encourage me enough to bring in a glass bottle.
Bulk pricing is often a good way to offer lower prices, so I inquired about a case price. They explained that it wasn’t possible since the product is made daily and would lose freshness if stored for too long.
Unique Freebies with Perceived Value
T-shirts are an excellent example. You could create a contest with different color shirts can only be obtained by achieving higher levels of loyalty – for example, everyone starts with a white shirt, but can earn a yellow shirt with $200 spent, a red shirt for $500 spent, and the exclusive blue shirt for $1000 spent. Not only is this a fun way to entice customers, but it’s free advertising for you when they’re out wearing your shirts around town.
The 3 most valuable points for business owners to take away from this story:
1) How could this go wrong? Understanding the numbers is critical. If you’re going to create an incentive or rewards or even a coupon, always ask yourself if you would be enticed to shop again because of your offer. If not, why would someone else? You must get customers excited for your incentive to serve its purpose.
2) Why would someone do this to them? Do what, leave? Although this is what I did, it wasn’t meant to hurt them, it was merely because I did not feel comfortable spending that much for a 12-ounce bottle of juice. Since it is my personal feeling, I don’t want to confront the owner (I will, but for this example, let’s leave it alone). You see, it’s worse now, because I have purchased my own juicer and no longer need their product. But the owner will never know why I didn’t return and never have a chance to make some changes to retain customers like me. It’s a shame because some kind of incentive could have kept me a customer for a long time. An aggressive incentive program would have kept me engaged. It’s important that I felt rewarded as I accelerated the purchases.
3) The biggest secret…Be Unique! Higher costs can often be offset without losing customers by making the transaction unique. This is very delicate but can be done. In the flower industry where I came from, I always made the point that if the product could be created in a competitor’s store or a supermarket, then it did not belong in my showroom. Make it cool and hip to shop in your store – add an item with perceived value like a free gift or chance to win a prize with each purchase.
Raising prices while also raising excitement
Nobody likes to see price increases; whether it’s at the gas pump or your favorite local store. But the reality is that they are an inevitable part of doing business. The good news is, we are always happy to try to help find unique solutions to make YOUR customers happy and keep them coming back for more. This is how this industry runs, and it’s my goal to always connect opportunities together with the talented team at Bloomerang – getting and keeping business and securing YOUR future in all that you do!