- Elon Musk, Investor & Entrepreneur
In times of economic uncertainty, it can be tough to decide exactly how you should adjust your pricing models. After all, you want to keep your prices high enough that you stay afloat (if not necessarily make a big profit) without driving your customers away, who may be experiencing budget-tightening of their own.
In this guide, let’s look at how to adjust your pricing for uncertain times. It requires balancing your prices along a very fine line, but it is possible.
DO NOT PRICE GOUGE
First and foremost, never try to price gouge your customers! Inexperienced business owners or managers that panic about the bottom line may suddenly try to hike up prices, particularly if they offer exclusive services and products that are needed by customers in their industry or niche. But this is a terrible mistake, even if it may result in short-term profits when people begrudgingly fork over the cash for stuff they need.
What this actually does is build up resentment in the hearts and minds of your major customers. Contrary to what many shortsighted managers believe, people remember companies that treat them well and companies that treat them poorly. This goes double for times of economic uncertainty.
If you try to hike up your prices and take advantage of vulnerable customers, they will remember it and they will jump ship as soon as they are able. You might be able to keep them paying for a short while, but angrily motivated customers will do everything they can to stop giving you money as soon as it’s possible.
ADJUST PRICING MORALLY
This ties into a larger point: you should always adjust your pricing model in as moral a manner as you can. But what does this really mean?
It means remembering the moral responsibility we all have to our neighbors and fellow business people, especially when things are uncertain across the market. Although we are all trying to make a profit and do the best we can for our individual organizations or businesses, we all have a shared responsibility to be kind to each other and cut each other a little slack when necessary.
This doesn’t mean you should give away your products for free or that you should lower your pricing points so that you go out of business. But it helps to consider the morality of a given pricing model.
Consider an example where you run a business selling masks. During the COVID-19 pandemic, you could gouge your prices and make a quick buck by raising the price for masks across the board. Or you could be moral and, recognizing that you will be selling a lot more masks in the near future, lower the price for individual masks to make it easier for hospitals to get all the safety supplies they need.
Just like people remember companies that treat them poorly, they will also remember companies that treat them morally.
LISTEN TO CUSTOMERS’ NEEDS
If you don’t know where to start with your new pricing model, consider listening directly to your customers. They may tell you what they can and can’t pay, particularly if you have a small, niche customer base that you communicate with very frequently.
Maybe you run a website and create content for a few thousand people to consume. You might be able to get direct answers about how much people can pay for a monthly subscription and adjust your pricing model accordingly. You might take a temporary pay cut, but you’ll keep your customers and they will likely be more than happy to go back to the old pricing model once things returned to normal.
DON’T OFFER DISCOUNTS – MAKE OTHER CONCESSIONS INSTEAD
It’s also tempting for kindhearted business owners to offer discounts, particularly to their long-term customers. But this is actually a mistake overall. Discounts can quickly become expected by your less charitable customers and you may need to permanently lower your pricing points across the board.
It’s a much better idea to offer temporary concessions to your customers to get them to stick with your business or product, at least while the economic uncertainty is still running rampant. Concessions can be additional accessories, an extra month or so of a subscription service, or any other incentives.
FOCUS ON ECONOMIC VALUE DRIVERS
What do we mean by this? In a nutshell, customers are less likely to be swayed to buy your product or service if you merely promise that they’ll make more of a profit in doing so. Remember, times of uncertainty or crisis are marked by extreme economic anxiety across most markets. People aren’t necessarily looking to make a profit during uncertain times: they’re just looking to retain the customers they currently have and survive.
You can focus on the economic value drivers that your product or service provides that benefit these objectives. For example, if you run a workplace co-op platform (like Slack or something similar), you can continue to showcase your platform’s value by emphasizing how it keeps the workplace and employees tied together and working smoothly.
Alternatively, you can emphasize how your products:
- keep customers loyal
- allow their users to maintain operational standards
- are cost-effective when retained in favor of other products
- and so on
The point is to emphasize that your product or service is your replaceable, not that it will improve profits during a time when almost no one is thinking about big numbers.
PLAN FOR THE FUTURE
Regardless of the exact pricing model you choose for the time being, you should also plan for the future. If you adjust your pricing models for your business, have a plan in place so you can adjust them back up to their previous levels as soon as economic uncertainty goes away. This will allow you to return to making a profit and making up for the money you might have lost during the uncertainty as quickly as possible.
Remember, if you treated your customers well during the economic uncertainty, chances are you’ll go back to your regular pricing model without any hiccups.
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Thought leaders & celebrities share their tactics for success on the Lisnic podcast by Lisa Teh & Nick Bell