Bringing up raising prices while the economy is still in the bottom end of the tank is like asking a group of pilots their opinions on using flaps in a crosswind—you’ll get a variety of answers from “a little” to “never!” Fear that raising prices will scare off customers is a common sentiment. While no one enjoys paying more for services, least of all thrifty pilots, it is necessary to increase prices regularly for a variety of reasons, including increases in your cost of goods, overhead, and other fixed or variable expenses.
First, convince yourself
Raising prices is no less difficult for larger businesses—the owners of which are less directly involved in day-to-day customer contact—than it is for smaller flight schools or independent flight instructors. Dale Furtwengler, a business blogger and author of Pricing for Profit, writes, “The primary reason why most companies, in every industry and profession, are severely under compensated for the value they provide is that they don’t know how to quantify their value.”�
It’s hard to quantify “the gift of flight,” or the value of training someone so they can “attain their dream job.” How do you quantify the value of intangibles? First, get on board with the concept that you are indeed providing both intrinsic and intangible values. I am not saying you have to relish raising prices or that it won’t be difficult for some of your customers to cope with a price increase. But don’t let personal misgivings about how much more flying costs now than when you started flying or fears of losing customers derail you from what is essential to your business’s future.
Timing, communication key to pricing transitions
Landing an aircraft takes timing. The same is true for raising your prices. Both timing and communicating the price increase properly to customers and employees are key elements to frictionless rate increases. Customers expect and understand gradual rate increases, but if you plan on raising prices substantially prepare for the storm to follow. Even if you weren’t a Netflix customer you probably heard the news stories about the outrage and customer backlash caused when Netflix, the largest video subscription service, suddenly and without warning raised prices 60 percent. Raising prices, like flaps, should be done incrementally. Even if you plan on raising prices substantially, give your customers adequate notice; 30 or 60 days is appropriate.
Informing employees is no less important. Make sure you let employees know how to communicate the increase to customers properly. Inexperienced CFIs are notorious for thinking they are in charge of not spending their customer’s money—the truth is, customers get to make their own decisions in that regard. Help your employees understand they are not their customer’s banker.
Will higher prices drive customers away or stimulate business?
Not surprisingly, economists and marketers study this question from all angles. One line of thought is that there is a psychological effect on people purchasing a product at higher prices. It’s called the sunk cost effect, or the sunk cost fallacy. This theory says people who have invested heavily in a product are more likely to stick around and get their money’s worth. For example, paying high dollar for football tickets causes you to stay to the end of the game even though the game may be over in the first quarter. But researchers have recently shown evidence for something called the screening effect, where higher prices change the mix of those who buy, creating a positive correlation between willingness to pay and the propensity to use a product. Their conclusion: Those who agree to a higher offer price are statistically and economically more likely to use the product. That is, a higher willingness to pay for a product is associated with a greater propensity to use it. If the screening effect can be correlated to pricing of flight training products and services, then the low-cost introductory flight is not driving the right mix of business to our doors.
Price on your distinctive values, not on your competition’s rates
Higher prices may drive the right mix of customers to you door, but what if your competitors have similar prices or even lower prices? For most customers a decision comes down to how well you can quantify and communicate the unique values of your services. What are your distinctive competencies and what does that do for your customers (what’s in it for them)? If you have new aircraft and your competitor doesn’t, you must be capable of delineating why that is a benefit to your customer (emotional values are just as important as physical); otherwise, an airplane is an airplane is an airplane. If you are an Apple computer lover, you know that “Mission Control,” “Time Machine,” or the “Cloud” could have been called something much more utilitarian; but Apple gets that whimsical and fun, along with making practical, intuitive interfaces, sell products—just ask Siri!
Remember: Convince yourself, raise prices incrementally, higher prices have not been proven to drive customers away, and identify your unique competencies (values).
Bottom line—raising prices shouldn’t cause a flap for you or your customers.
Dorothy Schick is the owner of TakeWING, a successful flight school in Oregon.
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