Companies Raising Prices

In the article, “How Companies Can Get Smart about Raising Prices?” Ailawadi and Farris (2013) explain that a company can raise the average prices for its products without turning away customers. The authors advise companies to employ customer segmentation to target their promotions to the right customers. Once the firm raises its product prices, it should discount to maintain customers who check coupons. It is crucial to segment the customers depending on sensitivity to prices and purchase history.

Companies should emphasize on promotions, markdowns, and coupons as a way of increasing prices of products. Such a move not only helps keep the customers who tight on budgets but also increases the profit margins of a product since some clients who do not care about the coupons and simply pay the higher price.

Companies should analyze the previous promotional responses of the segments to ascertain if there are any profitable or incremental price promotional results. By doing so, the marketers would easily pinpoint the segments which respond well to promotions or incrementals and do not merely replace the existing purchases with a greater discount. For such a strategy, the company can examine the customers on the segment under promotion and compare that with customers in markets that could not have received the promotion. The firms should offer different versions of their product at different price levels (Ailawadi & Farris, 2013).

Ailawadi and Farris (2013) further advise companies to test and control their way into knowledge. By taking a subset of the customer database by segment, a firm can ensure an accurate segment response. An email marketing campaign would be necessary for such an activity. The marketing team should also analyze the past pricing actions of the target segments to determine the places where prices had changed as well as the customer purchase patterns before and after the changes were announced.

Raising prices without losing customers requires honesty whereby the firms tell customers why the prices are changing, for instance, due to increasing costs of production or logistics (Finch, 2012). Therefore, consumers would know that the company is taking advantage of the current situation in the markets and the price increases are justified.

Additionally, firms should consider the products to get price increases since raising the prices of some products, such as staples impact consumers financially. As a result, a company should increase only the prices for products which consumers are less price sensitive about, for instance, cosmetics (Ailawadi & Farris, 2013).

When contemplating a price increase, timing is of the essence.  Ailawadi and Farris (2013) assert that raising prices for new products is better than for existing ones. New products come with new features and improvements which can justify the price increase.

Firms can unbundle their core products to suit the intended price changes, for example, adding extra features to raise the price but at least let the customers pay for the extras they want. Such a strategy works well with the consumer technology products whereby consumers may need a quality product with fewer features for less money or in the pay TV industry.

It is also advisable to make the product look more valuable if consumers are to resonate with the price increase. Consumers spend a reasonable amount of time comparing products and thus would easily notice a product which is giving them less value for their money depending on the reference price in their head (Kohli & Suri, 2011). However, companies can include different products in the same package to cover the price increase; for instance, selling a laptop computer together with a mouse, antivirus software, and a backpack would entice consumers to buy the product.

Companies can rely on the consumer value-based pricing strategy to raise the prices of their products. By increasing the perceived value of its products, consumers would still buy the products without minding about the increase (Kohli & Suri, 2011). For example, Gap Inc. produces the same quality of jeans but changes the appearance of some lines of products to make them look different and classy thus sell them at a premium price in the limited edition section. Therefore, firms should choose the added value to focus on and give an emphasis to promotion.

Further, companies can increase the actual value of the product with added services and thus add the costs as premium prices (Hinterhuber & Liozu, 2012). For example, some companies use warranties, personalized cards, or gift wrappings to increase the value to the product. It is also important to add premium price options on the product to ensure that customers do not shy away from buying the product even though its prices have gone up. A company can do that by anchoring the price of the product to make consumers go for the highly priced product since they would feel as though they are getting value for their money and making a saving.

When using the value-based pricing strategy to hike prices, it is important to study the personas of the target consumers (Coulter & Krishnamoorthy, 2014). Firms should determine whether the consumers are price sensitive or not. Some consumers barely notice when the price of a product goes up, and thus firms should target such consumers. However, it is not prudent to increase the prices of products with the highest margins to ensure that the company directs consumers towards its most profitable product (Kohli & Suri, 2011).

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