“I need you to pay more.”
When you’re trying to communicate that message to customers, you’ll encounter plenty of potential for things to veer in the wrong direction—and fast. As tricky and challenging as this conversation can be, its strategic importance is undeniable for companies with aggressive growth goals. And it’s a message responsibility that marketing pros inevitably at some point have to handle with effectiveness and precision.
Every time I mention in a public event that my company is in the process of conducting research around communicating price increases—research that includes academic testing to determine an optimal messaging framework—I get a flurry of responses from folks eager to see the results. (I’ll be sharing the results in next month’s column.)
But the feedback got me wondering: Why does the topic of price increases—or what I call the “why pay?” conversation—elicit such a zealous response? Well, part of it has to do with the fact that companies make strategic pricing decisions to push out competitive business or to get in the door by offering too-good-to-be-true pricing and concessions, with their ultimate goal being to land and expand later.
As a precursor to our academic study, Corporate Visions conducted a market survey to find out how companies are handling the message around price increases today. Some of the results underscore just how important this conversation is: Nearly two-thirds of B2B professionals (63%) said they believe price increases are “very important” or “mission-critical” for maintaining desired profitability and revenue growth.
How Are Customers Responding?
Frankly, this conversation isn’t going over too well with customers. The survey shows that companies lack the confidence, strategy, and messaging structure needed to effectively frame price increases to their customers. Low marks across these key areas are resulting in subpar outcomes in this pivotal conversation.
Nearly 69% of respondents in our survey described their requests for a price increase as “50-50” or worse in terms of how well they go over with customers. While they’re worried about settling for less than they want, they don’t seem to have a major concern about long-term damage to customer relationships and loyalty.
On the other hand, only about a third of companies think their price increase conversations are going the way they want, meaning they either get an acceptable increase (26%) or get everything they wanted (5%). That’s far from a glowing review of how this dialogue is being handled today, and it shows there’s still plenty of room for improvement.
A Confidence Gap?
When asked about their confidence level in the approaches they’re taking to price increase messaging, survey respondents admitted feeling shaky. In fact, just 37% said they are “confident” in their approach to communicating price increases, while only 8% feel “very confident.” This leaves 55% who are unsure about how appropriate or effective their price increase messaging is.
This begins to explain why nearly four out of five companies (79%) in the survey said they want more structure around their messaging for this critical conversation, while another 21% are convinced they’re doing well enough.
A related finding that’s just as telling: Fewer than one-third of respondents (32%) believe their approach to communicating price increases is “highly structured”—meaning they craft a deliberate communication plan using persuasive messaging techniques and provide specific recommendations to those who own this responsibility, including skills training on how best to communicate, plus negotiation pricing to maximize results.
Among the two-thirds of companies lagging in this aspect, the survey found that:
- Twenty-three percent said it’s ad-hoc, meaning they have no formal approach in place for this type of conversation and give license for the responsible parties to handle the development and delivery of this message on their own with the customers.
- Forty-four percent said their approach is somewhat structured, meaning someone creates a formal communication so the story is consistent, but then either leaves it up to the responsible parties to communicate or sends the request via email, before letting the team follow-up with limited messaging direction.
Does Marketing Need More of A Role?
Make no mistake: Requesting a price increase is a messaging responsibility—meaning it can be carried out effectively, less effectively, or downright terribly. That’s why it’s a bit surprising to find that, according to the survey, marketing departments are extremely marginalized in this conversation. In fact, marketing has primary responsibility for handling this message at only 9% of companies. Meanwhile, sales owns this message at 60% of companies—the highest ownership share of any department.
Considering the strategic importance and messaging implications of price increases, it’s worth asking: Should marketing play a bigger role in the development and delivery of this message? Given what’s at stake, and given how ineffectively this conversation often plays out with customers, that’s a question that companies may need to consider more seriously.
What these findings suggest more than anything is that companies know they’re leaving money on the table and getting less than they want, and perhaps even need, from their customers. Ongoing investments in servicing accounts and improving solutions, as well as the rising cost of goods, often end up in the same spot: a post-purchase price increase conversation.
Besides your profitability being on the line, this conversation carries the additional risk of tarnishing relationships, destabilizing the partnership, and possibly damaging customer loyalty in a way that makes them susceptible to a competitive alternative. A success rate of less than 33%, as indicated by the survey, shows there’s a considerable upside in handling this conversation in a more effective way.
Stay tuned for the research.