Five Steps to Change Your Prices
Changing your prices seems so hard and complicated, because it’s probably something you’ve put off until: 1. It was absolutely necessary – launching a product, drastic change in direction, etc. , or 2. Your board, investors, or customers are complaining so much, it’s finally jumped to the top of the priority list. In actuality, it takes some time, but it’s a fairly straightforward series of 5 steps.
1. Market and customer research (5 weeks)
This is where the bulk of your time is going to be spent, and we’re not going to go deep into how to conduct this research here, but check out these three articles for that process:
A. A Complete Guide to Value Based Pricing,
B. How to Measure Price Sensitivity,
C. How to Conduct Feature Value Analysis.
Overall, this is a lot easier if you’re in maintenance mode (meaning pricing’s been a core competency over time and you’re not doing this from scratch), but remember that your job isn’t to find the perfect pricing page. It doesn’t exist.
Your job is to hedge as much risk as you possibly can going into a live test. If you do things right, you’ll get pretty darn close to perfection though. In that vein, if you’re dealing with a larger team or organization, you’ll probably have a lot of opinions and “cooks in the kitchen”, so be sure to set a deadline or you’ll hit analysis paralysis, wasting time, money, and the opportunity to boost revenue and/or adoption.
2. Finalize the nuances of your pricing grid and tests (three days)
Once you’ve hit your stride with the market and customer research, a few big findings will be staring you in the face, forming into a single or multiple option(s) for your new pricing grid. After storming through the team and research, pick an option or aspect for your initial test. This could be an entire pricing page or a slight modification. Either way, check out Design the best Pricing Pages for design considerations. Remember – this is the page that makes or breaks your sale/conversion.
3. Reviewing price options with a customer advisory panel (5 days)
At this point you should’ve collected a massive amount of research from your market research and internal data, but you’re still in a bit of a vacuum. As such, talk with 20 different customers individually or as a group to review your proposed new pricing. Remember that this is a sanity check, as customers individually will have an incentive to say prices are too high. In that light, don’t ask open ended questions like, “what do you think?” Ask questions that get to a point about your most worrisome issues (does this make sense, what questions do you have, etc.)
4. Run an impact analysis (5 days in tandem with #3)
In tandem with those customer conversation, run an analysis of how current customers would be affected (even if you’re going to get everyone legacy pricing). If the impact is marginal, then you know the move isn’t that drastic. Yet, if you notice that some or all customers are facing over a 35% price increase, then you need to make sure you reach out to these customers individually or give them a bit of a transition discount to soften the blow (more on why in the data below). This data will also help you and the powers that be determine if the increase is warranted.
5. Setting up a communication plan (5 days in tandem with #3 and #4)
Finally make sure you have a transition plan in place that is distributed and agreed upon by anyone who talks or interacts with a customer. We’ve found honesty is the best policy with price increases, meaning you should be transparent as to why the change is actually occurring.
Even then though, it’s easier to launch a price increase alongside new features, increased functionality, etc. You’re going to have someone complain, so be sure you have a script or response ready. If you’ve done your homework this shouldn’t be a large amount of people.
That’s definitely a lot to take in, but in actuality I’m sure you agree that it’s not that complicated. Remember, that when you launch pricing and it impacts current customers, you’re going to invite feedback and you may need to make some tweaks that you didn’t foresee being an issue. Yet, make sure you stand by your decision unless it turns out to be a complete disaster (which it shouldn’t if you did your homework). To see a pricing change disaster, check out the comments section on this Pingdom price increase post. Clearly they didn’t realize how many border customers existed between plans.