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7 ways to raise prices without alienating customers, according to business owners who've done it

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A waiter delivers food to a table at Chelsea Square Restaurant as New York City restaurants open for limited capacity indoor dining on October 1, 2020 in New York. BRYAN R. SMITH/AFP via Getty Images

  • Coronavirus may have retailers slashing prices to desperately lure shoppers back but they will have to rise to cover rising costs.
  • Business Insider spoke with experts — as well as business owners — about how they repriced without having their loyal customers feel the pinch.
  • They suggest spreading out price rises, relaunching products and emphasizing 'added value.'
  • Visit Business Insider's homepage for more stories.
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It's more important than ever that business owners understand the subtle art of pricing. As early as May, Nasdaq reported that the coronavirus pandemic was driving up costs. Raising your own prices in response requires a delicate touch; get it wrong, and customers will look elsewhere to spend their money.

We asked experts and business owners to share their top tips.

1. Mix up the price rises

Leigh Caldwell, the author of "The Psychology Of Price," says a "one-size-fits-all" approach, like a blanket 10% increase across the whole business, could upset customers.

"But if you put one product up by 15%, another by 9%, and a third by 4% — and even cut one or two prices a little — then customers will not perceive an overall hike," he says.

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If you're clever about this, you might be able to raise the average price by 10%, for example without too many people noticing. Caldwell added: "If you highlight only the price cuts, that's what people will notice."

Read more: Daily Harvest founder and CEO Rachel Drori on how the subscription meal service plans to maintain profitability with the return of work lunches

2. Make the product feel like better value

AutoBead makes and sells premium car care products and was able to push up prices during lockdown by around 12% after refining the formulas.

"We relaunched existing products with a revised product description and price point," says cofounder James Ford, "And as the product had been improved, our customers were happy to pay more."

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At the same time, the company set about improving the perceived value of the car-cleaning kits they sell.

"Our prices increased significantly," says Ford. "However, by improving the quality of the accompanying goods such as [cleaning] cloths and partnering with a well-known brand, customers were keen to invest in the collaboration."

Luke Haslett, managing director of search specialists iakoe, is working on a PhD on pricing innovation and says "added value" like this often helps justify raising prices. He adds: "Among the benefits you might seek to quantify are reduced energy consumption or raw materials, improved product quality, decreased machine downtime, reduced maintenance and repairs, and reduced disposal costs."

3. Be open about why you're doing it

Companies normally don't share cost structure with their customers, but Bilal Gokpinar at University College London's School of Management says it can be a good idea to show people behind the curtain.

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"If you can clearly and convincingly communicate how your costs have increased and why you don't want to reduce the quality of your products or your service levels, customers can be understanding," he says.

Gokpinar cites how Proctor & Gamble announced price increases on a number of occasions in recent years, each time carefully explaining the underlying cause — "things like input cost pressures, rising cost of commodities and so on." 

4. Roll out increases gradually across different customer groups

Gian-Carlo Grossi, managing director of Roofing Megastore, says lockdown increased the cost of raw materials and imports, forcing them to raise prices for some products.

He says the company used its CRM [Customer Relationship Management] database to ensure the highest value customers, such as construction companies, weren't immediately hit. "When we wanted to roll out these price increases to these customers," Grossi says, "we were able to do it with more notice and greater communication."

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Read more: Entrepreneurs say Instagram Stories have helped them sell products faster and attract customers from home. Here's how they leverage the social media feature to grow their businesses.

5. Target your best customers and give them more for their money

Dr Rajesh Bhargave, associate professor of marketing at Imperial College Business School, says loyal customers tend to be less price sensitive and are better equipped to withstand paying a little more. "So find out what those customers like, give them more of that, and raise prices accordingly," Bhargave said. Starbucks, he says, is an interesting example.

"People who buy from them irregularly might be turned off by price increases or the introduction of new products that are more expensive," he says. "In contrast, loyal customers continue to purchase after modest price rises and may also be willing to try more expensive new menu items."

6. 'Anchor' lower prices alongside higher ones

"Anchoring" can persuade people they're still getting a bargain. It means showing people one (usually high) price to which they can compare everything else. 

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If you have hundreds of 24-inch computer monitors to sell at £100, advertising them alongside a £400 27-incher will put the prices in context. "If you triple the price of a product due to coronavirus-related supply shortages," says Leigh Caldwell, "Then the 20% increases of your other items will seem like a good deal."

7. Stretch the more elastic prices

Some products have greater "price elasticity".

Anastasia Laska, from retail pricing strategy experts Revionics, says: "Consumers instinctively know the price of some products and would notice any price change but with others they are relatively unaware of the exact price."

Modern pricing technologies, she says, can help business owners identify which products are best suited to these increases. Laska cites cheese as an example: "Some cheeses are very popular and consumed every day, while there is a long list of more exotic cheeses for real aficionados or special occasions. The latter usually offer a good opportunity to maneuver the price."

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