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Customer-based Strategies for Raising Prices

Hal Conick

Many managers believe that the only way to get customers to pay more is to load their products and services with more and more features. 

This is the classic value trap—provide more benefits to extract higher prices. Another approach—cost-plus pricing—relies on providing customers with justifications for price increases; justifications such as increased labor costs, inflation and higher raw-material costs.

Price increases, done incorrectly, often result in customer dissatisfaction and brand switching. It’s no wonder raising prices is a stressful, contentious and unpleasant process. When harried, some firms avoid raising prices by taking “self-harming” measures, such as reducing head count, lowering product quality and reducing services.

Such drastic actions may not always be necessary. Research on consumer reaction to pricing has identified several factors that can help firms to decrease customer price sensitivity. Reducing price sensitivity can enable firms to raise prices without negative side effects.

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Hal Conick

Hal Conick is a staff writer for the AMA’s magazines and e-newsletters. He can be reached at hconick@ama.org or on Twitter at @HalConick.