Monday, April 25, 2011

Prepare Customers for Price Increases

Industry analysts are saying that over coming months, suppliers will continue to ratchet up their prices to retailers. An Investor’s Business Daily article estimates a climb of 15% during year 2011, although the amount of the increase could vary widely depending upon the raw materials costs and types of demand in different retailing segments.
     Prepare your customers to accept price increases:
  • Strengthen store loyalty. The IBD article points to Lululemon Athletica, Tiffany, and Coach as retailers that have built a cult-like following among many customers. Shoppers at these stores often justify to themselves paying higher prices because of their desire to help the retailer succeed. Use social media to develop this sort of loyalty. Carrying exclusive premium-quality brands also helps.
  • A related way to help the customer justify the higher prices is to tell them a story that dramatizes the benefits of the store. Fill the story with as much detail as the shopper’s attention span seems to allow. Research at Switzerland’s University of St. Gallen finds that the detailed recitation distracts the shopper from concluding the salesperson is being manipulative.
  • Explain that you need to increase your prices when your supplier increases their costs to you. Adapt the following to fit your style: “When our suppliers increase their prices to us, we need to pass those increases on to the customers so that we can stay in business and continue to serve shoppers like you and employ the people like me.” Although the basis for suppliers charging you more might be the dramatic rise in transportation and shipping costs, avoid using this as a reason with customers. Research finds that talk of such indirect costs won’t persuade customers.
  • When raising prices on items that many customers will see as necessities, use signage to describe less expensive alternatives. Prepare your sales staff to point out the alternatives if a customer complains about the cost. Researchers at University of Arizona, Arizona State University, and University of Pennsylvania find that this reduces a consumer’s drive—conscious or subconscious—to punish the retailer for the price increase.
  • Consider warning customers of upcoming price increases. There’s certainly the risk they’ll then start looking for other sources for the products they’ve been purchasing from you. But there’s also the opportunity for you to boost sales and book profits sooner if customers decide to stock up before the cost rises.
Click below for more:
Be Ready to Explain Price Increases
Tell Stories for Price Increase Acceptance
Ditch Deep Discounts Via Adaptive Pricing

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