Many managers believe that the only way to get customers to pay more is to load their products and services with more and more features.
This is the classic value trapprovide more benefits to extract higher prices. Another approachcost-plus pricingrelies on providing customers with justifications for price increases; justifications such as increased labor costs, inflation and higher raw-material costs.
Price increases, done incorrectly, often result in customer dissatisfaction and brand switching. Its no wonder raising prices is a stressful, contentious and unpleasant process. When harried, some firms avoid raising prices by taking self-harming measures, such as reducing head count, lowering product quality and reducing services.
Such drastic actions may not always be necessary. Research on consumer reaction to pricing has identified several factors that can help firms to decrease customer price sensitivity. Reducing price sensitivity can enable firms to raise prices without negative side effects.
Login to view this page. You may create a free account from the login page after clicking "login".
Vikas Mittal is J. Hugh Liedtke Professor of Marketing, Rice University, USA.