Announcing a price increase: fair, explainable and within the rules
How to build the case for a price increase, which rules apply to consumers and business customers, and how to bring the message.
In this topic: Marketing 13
For many companies, a price increase is the hardest message of the year. So it is postponed: another quarter, until after the busy season. Meanwhile costs keep rising. McKinsey shows that companies which pass on cost increases too late lose margin on them (source: McKinsey, June 2019). Postponing feels customer-friendly, but it is a decision to pay the bill yourself.
A good price increase is not a trick. It is a decision you can explain, in a way your customer understands, within the rules that apply. That holds for a consultancy adjusting its rates, a wholesaler revising its price list and a commercial team in a large company preparing an annual price round.
First the case, then the message
- Your cost price: what does a product, hour or service really cost now, including higher purchasing, wages and energy? More in pricing.
- Cost trends in your industry: are costs rising for you or for the whole sector? The sector data show how cost lines develop by industry. That helps you make the case, to yourself as well.
- Cost to serve: not every customer costs the same. Bain authors advise B2B companies to make targeted increases based on the cost to serve, historical performance and value to the customer (source: Harvard Business Review, July 2021).
- Value to the customer: what does your product or service deliver for the customer? That value is your strongest argument.
McKinsey warns against broad increases across the board, which can erode customer trust (source: McKinsey, February 2022). Increase selectively: by product, customer group or service.
The rules: what is and is not allowed
| Situation | What applies |
|---|---|
| Consumers with a running contract or subscription | In the EU, a term that lets a supplier increase its price without giving the consumer the right to cancel when the final price is too high compared with the agreed price is on the indicative list of unfair terms (source: Directive 93/13/EEC, April 1993). Many other countries have similar consumer rules. Make sure your terms allow the increase and tell customers in advance what the new price is and when it applies. |
| Business customers | What you agreed decides. If a price is fixed for a period, you can only change it when the contract allows it. An indexation clause linked to a published index settles this in advance. |
| Contact with competitors | Never coordinate prices or price increases with competitors. The OECD defines hard core cartels as agreements or practices between competitors that aim to fix and raise prices, restrict supply or share markets (source: OECD, July 2019). Exchanging competitively sensitive information is also risky. |
"Everyone is going up in January" is a sentence better left unsaid at an industry event or in a group chat with peers. Competition authorities can treat signals about future prices as coordination. Take your pricing decision independently, and communicate it that way.
How to bring the message
The tone decides whether a customer goes along. Utpal Dholakia advises in Harvard Business Review to give the real reason, be direct and avoid euphemisms (source: Harvard Business Review, June 2021).
- 01
Choose a fixed moment
A fixed annual moment makes an increase predictable. Customers can include it in their own budget.
- 02
Give notice well in advance
A customer who knows in time can plan. A customer who discovers it on the invoice feels ambushed.
- 03
Start with the largest customers
Call or visit them before the general message goes out. What you explain in a conversation, you do not have to defend in a complaint.
- 04
Offer a choice
A simpler package, a longer term or a different delivery model gives the customer a way out within your offer instead of at a competitor.
Is margin already leaking? Read revenue up, profit down first. For customers who structurally deliver little, which customers cost you money helps decide where an adjustment pays off most.
Playbook, sample texts and pitfalls
Below you will find the full playbook with a timeline, a way to set the approach per customer group, three sample texts for business customers, subscriptions and professional fees, answers to the five objections you hear most, and the pitfalls that make an increase more expensive than necessary.
Can I raise the price of a running subscription?
Do the same rules apply to business customers?
May I discuss price increases with others in my industry?
How do I best announce a price increase?
Sources
- EUR-Lex: Directive 93/13/EEC on unfair terms in consumer contracts (April 1993)
- OECD: Recommendation concerning effective action against hard core cartels (July 2019)
- Harvard Business Review: If you're going to raise prices, tell customers why (June 2021)
- Harvard Business Review: How B2B firms can price with confidence as inflation rises (July 2021)
- McKinsey: Five ways to adapt pricing to inflation (February 2022)