Tuesday, November 3, 2009

Explain Price Ups & Downs to Customers

When your shoppers see a price increase these days, they are more likely than usual to assume you're being greedy. Price cuts are a fact of life throughout retailing now. Neiman Marcus, whose CEO bragged in 2005 about the chain's nonstop adherence to "full-price selling," seems to be holding nonstop sales promotions in 2009. Last September, the world's largest consumer products maker—Procter & Gamble—finally gave up after months of resistance and announced price cuts across 10% of its worldwide product lines, pressuring retailers to pass on the reductions to their customers. In this atmosphere of falling prices, shoppers get highly suspicious when they see prices going up.
     Therefore, if you find it necessary to raise prices to keep your business thriving, be ready to explain the reasons to customers. Research at University of Pennsylvania and University of Florida concludes that the explanations most likely to head off customer anger center on the cost of goods to the retailer from the supplier. This means that when selecting the products for which you'll nudge prices upwards, look at ones where there have indeed been increases in supplier charges. The researchers also found that customer anger is most likely when the retailer's explanations for increases in product costs are in terms of services costs, such as transportation or insurance.
     Also explain price decreases to customers. You got a good deal on a large purchase. Or you want to motivate people to try out a new brand. Or you want to help out customers at a time you know money is tight. Be sure what you're saying is true, of course. But at some point, you'll be increasing prices again, so you want to maintain in your customers the impression that the downs as well as the ups are for good reason.

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