You can be on Entrepreneur’s cover!

How to Let Customers Know About Increased Prices Without Making Them Mad Research-backed tips on dealing with price hikes.

By Tim Riesterer

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

As the world emerges into a new era of consumerism, prices for all goods and services have leaped thanks to a 40-year record inflation increase. In 2022, alone, the consumer price index rose 9.1 percent.

In our studies, we've found that about 80 percent of business revenue comes from existing customers. Because of today's record-high inflation, businesses can't just increase prices for new patrons. They first need to figure out how to have pricing conversations with existing clientele.

A year before the pandemic, we did some research into pricing and found that loyal customers would be supportive if the company told the customer that it would absorb some of the cost and share the remainder in the form of a price increase.

Having open, transparent and respectful conversations with customers about why the business increased prices led to more understanding and willingness to continue the relationship with a greater level of loyalty.

Netflix's recent price change is a prime example of this phenomenon: Although the streaming giant knew its price increase would upset many, it also knew it could convince loyal customers that cutting costs and boosting revenue would allow the service to grow and improve sustainably, thereby giving patrons proof of purchase.

Whether you're a large company looking to ride the wave of higher costs or an entrepreneur just starting out in this rocky environment, learning how to broach the subject of pricing is invaluable to your success. That's why we developed a framework called the Why Pay More Message.

Related: Four Ways To Give Your Customers Value

"Anchoring" impacts and sharing sunk costs

The former term is a behavioral concept that describes people's tendency to be "anchored" by the first piece of evidence heard, even if they hear more compelling (or contradictory) information later.

You can apply this phenomenon by starting with the benefits the customer has experienced and the outcomes you've seen together. This will serve to solidify their support and influence how they react to future information. If the anchor is positive, they'll be more inclined to respond positively to subsequent points, even if the points involve less welcoming changes (such as price increases).

Showing progress at the start of a Why Pay More conversation is a great anchoring move. For example, describe how enrollment in the customer's employee benefits program has gone from 20 percent to 50 percent during the last few years of the partnership. Motivate them by showing how much progress they've made toward their goal of 80 percent enrollment. They'll be more likely to think positively if their initial impression is one of progress.

Follow that up with a review of the investments you and your customer have made up to this point. The psychology of sunk cost suggests that people will be more inclined to continue to invest if they have before.

Say the patron has invested in a piece of software that promises to help them do their job more effectively and the software has long-term benefits. If they haven't tapped into those benefits yet, they'll likely invest more into the software rather than regressing back to square one.

Related: 7 Ways to Have a Difficult Conversation Without Losing Your Client

Celebrating new things while justifying discounted increases

Talk about some of the new things this price increase will offer, (i.e., a helpful addition or benefit they'll be able to apply to their own business).

United Airlines has found that when they raised the price of their club memberships---and wrote to members about how the new lounge spaces would be upgraded---the response was wholly positive.

Speaking of positivity, the most successful way to introduce a price raise is to present it alongside a discount.

Tell your clientele something along the lines of: "We need to let you know that the price of this solution is going up 8 percent, but since you're a loyal customer, your cost is only going to increase by 4 percent."

By anchoring with a larger number before a discount, you can be perceived as rewarding customers for their loyalty.

As higher costs and competition abound, you can gain loyalty from your followers simply by being transparent. Involve them in your price changes, anchor them with positive information and remind them of the relationship you've built together.

Related: Stop Competing on Price -- Compete on Value

Tim Riesterer

Chief Strategy Officer at Corporate Visions and B2B DecisionLabs

Tim Riesterer, Chief Strategy Officer at Corporate Visions and B2B DecisionLabs, helps companies improve conversations with prospects and customers to win more business. He is a researcher, thought leader and keynote speaker with more than 20 years of experience in marketing and sales management.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business News

'Wildly Inappropriate': Woman Says She Was Denied a Job Because She Didn't Wear Makeup During the Interview

Melissa Weaver was applying for a VP of HR job at a tech company via video.

Side Hustle

These Are the 10 Best States for Starting a Side Hustle, New Research Reveals

One side hustle might not be as lucrative as another — and location matters.

Business News

Uber Is Fixing One of the Biggest Complaints Families and Parents Have With the Company

Uber Car Seat is now available in New York and Los Angeles.

Thought Leaders

How To Improve Your Soft Skills and Emotional Intelligence in 7 Easy Steps

Using these simple but effective approaches will help a person in their business, life and relationships.

Business News

Founders of Companies Worth Over a Billion Dollars Have These Simple Things in Common

A new study found three traits that stood out in unicorn founders.

Business News

Dollar Tree Is Raising Its Price Cap to $7: 'The Macro Environment Has Gotten in Our Way'

The discount chain's cap was most recently raised to $5 last June.