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Raising Prices? Take a Cue from Amazon

Thursday, April 10th, 2014

Businesses of all types can learn something from the way Amazon handled the price increase of its Prime service, according to a Harvard Business Review blog post. The leading online retailer recently raised the cost of its subscription service from $79 to $99 with little backlash. No customer is going to be happy about a price increase, but with the right messaging tactics, you can ease the pain.

Float a Scarier Number. Hint at the possibility of a more severe price raise, and justify the consideration using the tactics discussed later. When the actual increase is on the low end of the spectrum discussed, it will seem like more of a relief than a burden.

Blame costs. Just like Amazon blamed higher shipping at and fuel cost for the need for an increase, you can blame your hike on product, utility and personnel costs. It’s something that’s hard to argue with, as most everybody is experiencing higher cost of living themselves.

Appeal to Fairness. When Amazon noted that it hadn’t raised the price in nine years, it only made sense that an increase at some point was inevitable. Make it seem like they’ve been fortunate to stay at the previous price point for as long as they have.

Hint That There’s More to Come. Emphasize the fact that a marginal increase to them will allow you to greatly improve the customer experience with better equipment, service and extras.

Remind Customers of the Value It Provides. Use the increase as an opportunity to tell your customers about the overall value that you offer. Sure, there may be competitors offering better prices, but at the end of the day, is a few bucks difference not worth it for a better experience several times a month?

Resist the One Price Fits All Mindset. Here’s one thing that Amazon did not do, but should have. By utilizing tiers of pricing the right way, you can increase revenue and still offer options that appeal to most customers. You don’t have to abandon a bargain tier, just make sure the higher-level options provide a significantly better value. And don’t be scared to offer an extremely high-priced option. If a few people happen to spring for it, that’s great, plus its presence will tend to make people choose the middle option rather than the lower one.

Click here to read the blog post from Harvard Business Review.

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