Yes, You Can Raise Prices in a Downturn

When was the last time you got a raise? Corporate America has been stingy with raises during the downturn, but pain has also been felt among the ranks of small business owners who have been hesitant to raise prices in a tough economy. In fact, the uncertain economy has promoted many companies to cut internal costs, and even lower prices. Over the last few months, your mailbox likely was full of flyers from local companies or restaurants offering you a deal. Late night infomercials take the marketing pitch to an extreme — Order now, and you get two of whatever they are selling, and something tacked on for “free.” However, new research from Harvard Business School, “Performance Pricing in Tough Times,” suggests that businesses can, and should, charge more for delivering more — even in a market downturn. Companies should compete “on the basis of initiatives for which their customers willingly pay higher prices,” says study co-author Frank V. Cespedes, a senior lecturer at Harvard Business School who spent 12 years running a professional services firm.

The key in selling your price increase, say the Harvard researchers, is that your customers understand the value represented in your pricing. To further explore the researchers’ assertion that “Pricing builds or destroys value faster than almost any business action,” check out the HBS interview where authors Frank Cespedes, Benson P. Shapiro, and Elliot Ross discuss pricing strategy and how to convince your customers that higher prices are worth the cost.

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