Thursday, August 09, 2007

If you can raise prices, don't hesitate

Last night I was talking with my mother in law & she related to me a story. When they were renting apartments, they would have customers sign a lease. When it was time for that lease to be renewed they could raise the rent if they wanted. At first, they tried not to increase the rent until it was absolutely necessary. What they found is when they waited & did it much later that the rent raise was a real shock to the tenants, who had a very negative reaction to the increase. They actually lost some tenants due to that.

She learned that increasing the rent each renewal time, even a small amount, was better than holding off and giving a bigger increase some time in the future.

This is true in pricing almost any service product. At my last company we worked hard to negotiate price increase clauses in our long-term contracts. But if we didn't use them for the first few years of the contract, we found it very difficult to raise prices later. Customers would scream, and in some cases we backed off.

So the lesson to marketers is: small regular increases work far better for customer relations than no increases followed by a jump.

It's better for your revenue too.

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