Strategic Planning

In a Price War? Raise Your Prices to Increase Revenue.

raise prices to increase revenueFew companies emerge from a price war better off. What should you do if your competitors start undercutting your prices? A knee-jerk reaction is to lower your prices as well. But for some companies, that’s the exact opposite of the correct move–which is to raise prices to increase revenue.

Terry Irwin of TCii Strategic and Management Consultants understands this well.

First, the details: TCii delivers business strategy development and implementation and strategic and tactical help to multinational conglomerates and small to medium-sized businesses (between 10 to 250 employees). Terry is the CEO and heads TCii’s London office. TCii has offices in and serves clients in Europe, Asia, the Middle East, Africa and Australia.

Next, his client’s challenge:

“Our client had enjoyed healthy growth and repeat business, fitting new flooring into retail outlets and other commercial businesses. However, they then started being undercut by competitors but wanted to avoid getting into the downward spiral of a price war.”

Terry’s team was tasked with devising and implementing a strategy that would maintain existing turnover/profit ratios and generate new business in the medium and long term.

TCii’s Solution

To better understand the market, TCii launched a survey positioned as a vehicle to generate feedback to improve customer service. Terry’s team then assessed and interpreted the results of the survey to identify what the client’s customers saw as the greatest value.

For example, where a customer complimented the client for quality of work and on-time completion, TCii worked with the client to understand the consequence of missing the deadline or working faster with reduced quality. The result? The market viewed their client as a premium offering, far more capable than their competitors trying to initiate the price war.

Did it make sense to drop prices to compete with inferior offerings?

Not at all. TCii developed marketing collateral and sales literature that supported a “premium” brand and focused on the “risk” involved with choosing a competitor who could not guarantee the same quality counsel, craftsmenship or delivery.

This strategy contradicts many people’s natural instincts, and Terry’s client was hesitant. Following the path of any good marketer, Terry and his team created a test using 4 non-critical customers so their client could see the results.

The Outcome

Three of the four customers accepted the price increases without significant comment. The fourth initially resisted, but accepted after negotiation. They then rolled out the higher prices to the entire customer base.

Though a few customers defected to the cheaper competitors, the brand supported the higher prices and the company increased its revenue by 18% that year.

The Takeaway

This strategy won’t work for everyone. If you’re a commodity or only use price to differentiate your offering, raising your prices isn’t a smart move. But many SMBs don’t understand the true value that they deliver to their market, or understand how to capitalize on it.

Take extra care when considering a price increase, especially during price wars or a down economy. Check out the detailed steps Parker Hannifan took before making a price change.

And, here’s an 8 step pricing strategy how-to that will help you decide whether this will work for your company. If you’re a consultant, pickup some tools to help you determine price elasticity.

Or better yet, give Terry a call and let his team of experts handle it!

UK Head Office:
+ 44 (0) 20 7099 2621

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