I’ve used a particular massage service for years. Last week they sent all their clients an email message. They’d raised prices by about 20%. “Many of you tip by this amount,” they said. “So henceforth, we will no longer accept gratuities.’
What’s the story they’re communicating? “If everyone tipped 20% we wouldn’t have to do this.”
Clearly most clients are not tipping at this level; if just a few failed to tip, the price increase wouldn’t make a dent in their profits.
Some clients won’t tip at all because they perceive massage as a medical service. It’s not a spa, they say.
On the one hand, I applaud the principle. When you own a service you charge what it’s worth and keep all the money. You shouldn’t need tips to close the gap between what you charge and a fair price.
On the other hand, as a marketer who falls into the non-tip group the message makes me cringe: “You cheapskate! You should have tipped.”
So what’s the best way to announce a price increase?
When I googled the question, I found two types of strategies…and I’ll tell you why I don’t like either one.
Advice #1: Gain support by sharing your “why I have to do this” story.
Writing in Harvard Business Review, Utpal M. Dholakia points out:
When a brand uses a euphemism to convey a price increase, it does not distract customers or dilute the negative impact of the news, as managers may believe. Instead, it arouses suspicion, making recipients more vigilant and critical of the information contained in the announcement.
Research shows that after the size of the price increase, the perceived fairness of the motive for it is the second-biggest driver of how customers react.
For example, he suggests, companies could point out their own increased costs for materials and labor.
What’s wrong with this story?
This story asks us to understand where the seller is coming from. It’s somewhat like a “hero’s journey” or “hard luck” story with a flat ending. In an online service-based business, your clients might be tempted to respond: “Oh please…you already charge a lot. You don’t have that much overhead if you’re selling electrons.”
Advice #2: A Hubspot booklet takes another position, suggesting something along the lines of, “We know a price increase is never ideal. Here are the benefits you will get as a result.”
Writing in Forbes, Chris Kille says:
there’s a right way to communicate price increases with customers—and it’s not by telling them what they want to hear. It’s by telling them what they need to hear: why the price went up, how much value it provides and how you can help them get more of that value for less money.
What’s wrong with this story?
In the past month I’ve received notices of price increases from two vendors who promised I’d get more value from their new bells and whistles. Problem was, I don’t need their new bells and whistles. This explanation adds insult to injury. I’m looking for alternatives right now.
This approach seems more market-oriented, but in fact it’s just the opposite. You’re forcing a story on your client (a topic I’ll be exploring in a future podcast).
These services suggest your story will be, “I’m excited for those bells and whistles. They’re worth every penny and more.”
An unlikely story! More likely they’re saying:
“Their prices changed but my budget didn’t. Now I’ve got to decide whether to continue with them or look for a better-priced alternative. That means work…and no way will this story have a happy ending.”
What’s a better approach?
I’d recommend announcing a price increase without explanation. You might give your current clients a heads-up and invite them to sign up one last time at the old prices.
Your customers and clients know the score. They know prices are rising everywhere. They know that service businesses will raise prices as they get more clients and become more competitive. And they know that’s probably the real reason you’re raising prices: because you can.
Unless you’re a charity you aren’t serving people out of altruism. You want revenue.
Your clients know it. You’re a small business with many competitors. You’re not price-gouging, i.e., forcing high prices on a population that’s forced to use your services.
Although you do help your client solve challenging problems, often your services are a “nice-to-have” rather than an essential.
So I vote for announcing a price increase with no apology and no explanation. I agree with those who say to call it a price increase, not an “adjustment” or some other euphemism. It is what it is…and so are your client’s budget and values.