by Kim S. Nash

How To Avoid Price Hike Backlash

Feb 24, 20123 mins
CIOIT Strategy

CIOs should jump into pricing strategy discussions to ground price decisions in data


What you charge for products and services can be a sticky issue, even in the best of times. But when word spread that Sony had raised prices on Whitney Houston songs on iTunes in the U.K. the day after she died, there was instant backlash. Sony revoked the higher prices, saying the albums were “mistakenly mispriced.” 

Companies fiddle with price a lot. Walmart did lots of “rollbacks” last year, cutting prices to yesteryear levels on basic items such as bed spreads and strollers. That didn’t work out so well, so this week Walmart said it plans to reverse those rollbacks, raising prices. The department store Kohl’s, meanwhile, plans to cut prices this year, after increasing them last year. “We passed on higher apparel costs to customers,” said Kevin Mansell, chairman, president and CEO, in a call with analysts this week. “We did see resistance.” 

I’ve written about howcompanies don’t analyze pricingoptions thoroughly enough. There are many ways to use business intelligence to comb through the massive amounts of information they collect on marketing campaigns, customer interactions and sales performance. But often pricing decisions are based on gut and not grounded in data. 

Balancing the science with the art is best. I like what Rafi Mohammed advises to avoid having your customers freak out about price changes. Mohammed is a pricing strategy consultant who recently wrote on the Harvard Business Review’s blog that if companies such as Verizon and Bank of America had used more finesse in breaking the news about their price hikes, they might have gotten them to stick. 

Verizon announced in December it would charge customers $2 for doing one-time payments of bills online or by phone. Bank of America had floated the idea of charging customers $5 for using their debit cards. Both companies backpedaled after customers complained. Mohammed’s advice for better reception: Explain why you’re raising prices, offer choices and show how your product is still a good value. 

That’s good, but messages like that can be stronger with data behind them. CIOs can provide analysis tools to uncover trends that, in the company’s view, justify a price increase. Sorting through customer and transaction data may reveal new bundles of products and services to offer that get the price increase you want but also provide more valuable merchandise to customers. The marketing department doesn’t always know what technology tools can do. The CIO should guide them. Then why not bring some of those findings directly to the public? People like a logical argument. With a data-based rationale, price hikes might go down more smoothly.