More than half of UK businesses plan to raise their prices in the next three months, according to the British Chambers of Commerce (BCC).
Faced with rising costs, increased tax burdens, and economic uncertainty, many businesses feel they have no choice.
So how can businesses increase prices without losing customers or fuelling inflation?
Businesses that take a strategic, well-planned approach to pricing will be in a stronger position than those who react impulsively.
Understand your cost base
Before making any pricing decisions, you should view your cost structure.
With National Insurance rises and inflationary pressures, are your overheads increasing?
If so, by how much? A detailed cost analysis will help you determine whether price increases are necessary or whether cost efficiencies could ease the burden.
Segment your customers
Not all customers are price-sensitive in the same way.
Some prioritise value over cost, while others will walk away at the first sign of a price hike.
Knowing your customers and setting prices accordingly, such as offering different price levels, premium options, or loyalty discounts, can help reduce risk.
Communicate value, not just cost increases
Price hikes are easier for customers to accept when they understand the reasoning.
If you must raise prices, be transparent.
Highlight the value you bring, whether it is improved service, better materials, or added benefits.
Consider alternative strategies
Raising prices is not the only option.
Could you introduce subscription models, bulk discounts, or bundled services to maintain customer loyalty while increasing revenue?
Regularly review your pricing model
In a volatile economy, pricing strategies should be dynamic.
Regularly reviewing your pricing against costs, competitor benchmarks, and customer behaviour will help you stay ahead.
As businesses grapple with uncertainty, a well-thought-out pricing strategy could be the difference between thriving and merely surviving.
Psychological pricing
The practice of psychological pricing is not a groundbreaking strategy, but it is one that has been gaining traction in recent years as businesses look to remain competitive.
Consumers do not always make purchasing decisions based on logic alone.
Emotions, perceptions, and subconscious cues play a huge role in how people perceive value.
Psychological pricing takes advantage of this by using pricing techniques that subtly influence customer behaviour, making products or services appear more attractive without necessarily lowering profit margins.
One of the most well-known methods is charm pricing, where prices are set just below a round number, £9.99 instead of £10, for example.
This taps into the way our brains process numbers, making £9.99 feel significantly cheaper than £10, even though the difference is just one penny.
Another common approach is price anchoring, where an initial, often higher price is shown alongside a discounted price to make the final cost seem like a bargain.
This is particularly effective in retail and subscription-based businesses, where customers compare prices based on the first number they see.
Bundle pricing is another psychological tool, encouraging customers to perceive greater value by combining products or services. For example, offering a “Buy One, Get One 50 Per Cent Off” deal makes the purchase feel like a better deal than a straightforward discount on a single item.
When used effectively, psychological pricing can boost sales and enhance perceived value, but businesses must strike a balance.
Overuse can lead to scepticism or erode trust in pricing integrity.
The key is to understand your customers’ decision-making processes and apply pricing tactics in a way that feels natural and beneficial to them.
If you need help with your pricing strategy, contact our expert team of accountants today.
