With the economy on the upswing, most companies are contemplating increasing prices.
Amazon recently hiked the price of its Prime service, which includes two-day shipping, Kindle book loans, and streaming video. Raising Prime’s price is especially risky as it’s a key marketing conduit that draws in and engenders loyalty from customers. With a P/E ratio exceeding 550, Wall Street is expecting Amazon to continue dazzling investors with eye-popping annual revenue increases.
Amazon clearly noted that it has not raised Prime’s price since its inception nine years ago.
Don’t Cave to Simple Market Research. UBS conducted a survey indicating a $20 price increase would put 42% of current Prime customers at risk of ditching the service. This led the Swiss-based financial services company to downgrade Amazon’s stock from a “buy” to “neutral. Equally important, survey respondents were probably not exposed to Amazon’s reasoning on why it is increasing prices. This spin is critical in how customers evaluate a price increase.
Since Prime is so critical to growth, it needs a lower price point entry version to attract new customers.
Raising prices is an angst-inducing ritual for all companies. The art of raising prices involves a clear yet sensitive dialogue with customers to justify the lift. As Amazon demonstrated, even a 25% price increase can be palatable if pitched correctly.
via http://blogs.hbr.org/2014/04/the-art-of-raising-prices-lessons-from-amazon-prime/