If you run a retail business with hundreds or thousands of products, raising prices is relatively easy. Just swap in new prices for old.
But in many industries, raising prices is a challenge. No matter how justified the increase -- higher supply costs, shipping costs, inflation, etc. -- most customers, especially long-term customers, won't be happy.
Which may be why American Airlines just decided to increase checked bag fees for basic economy flyers traveling between the U.S., Europe, or Africa from $60 to $75 per bag each way.
That's a 25 percent increase, one that would normally attract significant attention.
But relatively few customers are flying right now. Last year at this time, the TSA screened approximately 2 million passengers per day. Now the number is below 100,000 per day.
That's a 95 percent decrease in passengers.
According to an American Airlines spokesperson, "Starting Tuesday, April 21, American changed its checked baggage fees for Basic Economy passengers on transatlantic flights to better align our bag fee structure with our Atlantic Joint Business partners, British Airways, Iberia, and Finnair."
Sounds logical. Other airlines also use it; United raised checked bag fees on some fares earlier this year to "bring them into line" with its Star Alliance partners.
So why raise checked bag fees now? For one thing, few will notice. And when people start flying again, few will notice simply because they forgot how much it used to cost to check bags.
That's the approach an entrepreneur friend has taken. He provides ongoing services. His business is significantly down. The majority of his longtime customers have canceled their contracts. His flow of new customers has all but disappeared.
Interestingly, though, the new customers he has landed don't appear to be price sensitive. They need what he provides. They need it now. They're more than willing to pay for quality and reliability?
So, counterintuitive though it may seem, he's raised prices during the downturn. His reasoning is simple: While single-digit price increases in no way offset his overall revenue loss, they do help -- and they better position him when conditions returns to "normal."
He won't have to have that awkward price increase conversation with longtime customers.
And he won't have to find clever ways to raise prices . Like raising prices as he adds services. Or creating different volume points. Or creating new service bundles, or service options, or new payment terms and options.
In short, he won't have to explain -- just like American Airlines probably won't have to explain.
As you plan for the future of your business, do what Mark Cuban recently recommended and don't just follow the crowd. Many businesses have already lowered their prices in an attempt to generate much-needed cash flow. Many more will do so when restrictions are gradually lifted.
If you've needed to raise prices for some time but were worried about upsetting or losing customers, now might actually be the perfect time.
Published on: Apr 24,