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Price increases

Tom Feinson
Price Increases
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I recently received a letter from my broadband supplier (From now on known as supplier X) telling me that their prices were increasing, and changes were being made to services and pricing terms. To be specific the cost of my broadband was to go up by 40%. I rang supplier X and after selecting half a dozen options I got to the “I’m thinking of leaving queue”. Whilst I waited an automated voice told me that my price increase had been cut by 50% for the next 3 months. Wow, if this is the discount I get for simply calling just imagine what I’ll get if I actually speak to someone. After a surprisingly short wait that happened, I explained my situation, they scuttled off to see what they could do, within 10 minutes they came back and offered to give me a discount that matched the price increase for the rest of the term of my contract.

I couldn’t work out whether I was appalled or elated. Why would a sensible grown-up company go to the trouble of increasing prices to immediately discount them back? The answer can be found in the “Rule of thirds”. It is believed that when a price increase is imposed (The same works for cost-down initiatives) about a third accept without complaint, one-third completely reject and one-third look to negotiate. Therefore, even if you concede with one-third, overall, you’ll come out on top. Whilst there is a logic to this the “Rule of Thirds” is not absolute, anyone putting up prices can influence the ratios in their favour.

So, if you’re looking to increase prices here are some tips to help maximise acceptance, minimise rejection and get the best value out of a negotiation.

It starts with clarity, be specific about what you want, what your message is, where you have flexibility and where you don’t.

Once you have identified what you want ask for it and be specific. In this situation, I was told exactly how much my broadband would be going up. So far so good. However, supplier X let themselves down by making an extreme demand. Even in the current environment a 40% price increase is unrealistic and will be seen as an opening gambit which will be rejected. You will increase your chances of getting what you want if what you ask for is realistic.

I was also told when it was going to happen. This helps create a sense of urgency and removes the status quo as an option. Tell people when it’s going to happen, give a reasonable lead time and implement it when you say you are going to.

If you are familiar with the cognitive bias “Loss aversion” you’ll understand why supplier X took the opportunity to not only increase prices but reduce the service and change contractual terms. If you have bad news share it all in one go rather than on a piecemeal basis.

Develop a simple repeatable message that intuitively makes sense, and everyone delivers. Explain it in consumer terms, remind them of the value and demonstrate market acceptance. Supplier X devoted two lines out of two pages to explain the context and referred only to the “Quality of service you’d expect from us” to remind me of the value I was getting from them, lazy and generic. Neither the rationale or the value message were ever spoken of again during my interactions with customer service.

Once you have made your pitch be prepared for pushback.  Remember, even if a third are sufficiently apathetic to simply accept that leaves two-thirds to deal with, who will be looking to delay, diminish or dismiss and will employ a range of tactical devices to do so. The first and most widely used is flat-out refusal, computer says NO, often allied with brinkmanship, threats of all the unpleasant things that will happen to you if you persist and hope that deters you. If it doesn’t you are likely to face delaying tactics. Don’t be surprised if you’re asked to provide evidence to demonstrate the basis of the increase. This is often a ploy to lure you into what is essentially a filibuster where implementation of a price rise is delayed by drawing you into the minutiae of technical/procedural differences of opinion. Don’t be deterred stick to your guns and eventually, they will recognise that you’re not going away. At some point, you’ll hear words to the effect of “So what is it that you want”

Once you move into this phase you need to calculate how strongly you will hold the line. Key determinants are dependency and risk. In my interaction with Supplier X, there was no effort to negotiate, it may well be that I would have accepted less and/or provided them more value for their concession. Therefore, it’s in your interests to have identified trading variables that will create value for you/the other party that you can use to create value based on the initial proposal. Even if you conclude that ultimately you will have to concede don’t sign post to the other party that it’s likely to happen as you will encourage them to push back. At all points during my experience with supplier X the signals I received encouraged me to keep going and expect more.

Oh, and one last thing, be alert to this phrase “Oh, and one last thing” it is rarely delivered by accident and is almost always a ploy to secure additional concessions in the end game.

For negotiation consultancy and training, get in contact with Scotwork:

P: 042979069

E: info@scotwork.co.nz

Tom Feinson
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