Why Are CEOs Afraid to Raise Prices?

I was on the road for a good part of the last few months and saw an interesting trend:  CEOs who know they are underpriced for their value are uncomfortable (at best) to increase their prices.  This fear falls into three main categories:

1. Alienating customers

Whether it’s boutique entrepreneurs or enterprise-sized multinationals, CEOs are afraid that any price increase will alienate customers.  This includes raising prices for the full amount of tariffs – I’m seeing companies eat a good portion of increased cost and keeping prices flat while the value of their service increases.

Boutique leaders are especially sensitive because they are often also the sales leader for their firm and build relationships with customers.  These customers have become friends, and they don’t want to hurt their friends … despite it having a negative effect on their company and team.

In lieu of suggesting leaders “get over it and just raise price,” I’ll offer an intermediate step.  Investigate your profitability at the customer level.  You’ll find some of these “friend customers” require so much hand holding and require so much extra attention from your team that the revenue you receive comes at zero profit:

Start there.  Raise prices on your unprofitable customers and see what happens.  My guess is that they will accept the increase and if they don’t, you won’t be losing anything.

2. Quantifying your value

CEOs and salespeople alike are hesitant to ask value questions of their customers.  Questions like:

• “Why did you choose us?”
• “How does our service increase your revenue (or reduce your costs or minimize your risk)?”
• “What would happen if our service went away?”

It can be scary to ask these questions because you don’t know what the answers will be.  You know what’s even scarier?  Having your customers answer these questions for themselves and not tell you.  If they come to erroneous conclusions without you there to discuss it with them, the results could be disastrous.

These questions are only Step 1 in getting the real impact of your value, though.  To really understand if you’re being fairly compensated for your value, you need to quantify it.

Cascading questions are the key.  Start with “Why did you choose us?” and based on the answer, get more detailed.  For example:

A:  We chose you because you help grow our business.

Q:  How so?

A:  With your service, we’ve landed new customers.

Q:  Awesome!  How many new customers?

A:  Probably 3-5.

Q:  Great – how much is a new customer worth to you?

You see where I’m going here …

3. Pricing for AI

Many firms are adopting AI for new products and better internal efficiency.  In almost all cases, that improved efficiency results in a lower cost to serve.  Your customers know that too, and any Procurement professional worth their salt is going to ask for a price reduction.  This is where the CEO fear rears its ugly head.

“They’re right,” the CEO says.  “Maybe we should reduce our price a little to pass along the cost savings we’re seeing.”  Be careful here.  I would not drop price unless you’ve lost differentiation – and you may have actually increased your differentiation.  How has your differential value changed as you’ve implemented your new AI?  Will your customers see higher revenues or lower costs / saved time as a result?”  One could argue you should be charging more, not less.

Conclusion

As a CEO or other senior leader, it’s time to get over your fear of losing customers and start pricing for the value you provide them.  You’ll have to change your approach, but think of the opportunities it affords you.  With increased profit you can reinvest in your business, pay employee bonuses, hire additional staff and/or take a nice vacation.  I’m willing to have some potentially challenging customer conversations for all of those things.  Are you?