Two Cases of Price Hikes! How it matters?

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 It continued for more than a fortnight and finally after it the freebie was withdrawn, while the new prices got established into the consumer mind.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.