Price changes in business are inevitable. However how
the companies make their price hike without offending the customer is critical
part of business approach which the article highlights
People resist change.
Acclaimed ace investor Warren Buffet once said,
“You can determine the strength of a business over time by the amount of agony
they go through in raising prices”.
Gradual and small changes may not be noticed by the
consumers.
Being an ardent small data fan and
marketing enthusiast, I observe these changes and how they impact consumer behavior
and came across two interesting case of price hike a couple of months back –
One product with monthly subscription (cable service provider which we will
call Cable TV) and other a FMCG company with a staple bread as product (which
we will call Tasty bread).
Cable TV increased the pack price of its
services from Rs 350 to Rs 400 while Tasty bread increased its prices from Rs 35
to Rs 40. A price hike of exact 14.3% in both cases.
So how the two companies introduced the price
hike in the market?
Cable TV never messaged about the price
increase as shocker for many came at the time of recharge. They would have used
other modes too like SMS.
On the other hand, Tasty bread while
increasing the price offered a free pack of another product (worth Rs 10) with
the bread. It continued for more than a fortnight and finally after it the
freebie was withdrawn, while the new prices got established into the consumer
mind.
We have seen multiple cases of price hike
around us in various product categories be it increase in recharge packs,
consumer durable or services. How the customer responded to the increase in
product prices after online companies slashed their discounts is known.
The
customers’ response to price hikes will vary. It will depend on the nature of
product, price point (low or high), frequency (purchase and usage cycle),
nature of usage and need or criticality of product in the life of customer and the
way product is consumed (personal or shared product).
While it may be critical for company
top-line, the above factors need to be evaluated. With customer psychology of
seeking pleasure and avoiding pain, the product manager needs to evaluate how
the price hike will be taken by customer. Do customer have other competitive
product or substitute to switch and what is the total cost of switch also need
to be evaluated?
In the case of Cable TV, being in a gated
community, the freedom to install our own satellite dish was prohibited. With
limited choice what psychologist called the principle of autonomy and reactance
got applied. Despite the agony of one-sided case of price increase the option
was to stick to the service provider. While with Tasty bread, with multiple
option available in the market and gradual process of conditioning with
freebies, the price increase was accepted happily.
In both the price hike cases, the final
decision was to stay with the price increase however it created a diverse
affection for both brands, one positive and one negative.
