In July 2011 Netflix announced it was creating two separate customer plans: one for unlimited streaming for $7.99 a month and one for one DVD at a time for $7.99 a month. The move essentially was a 60% increase in price for those customers who had both streaming and mail DVD services.
A customer revolt ensued, causing an estimated 800,000 subscribers to cancel the service. So what happened? It’s simple, says Mike McDougall, managing partner at McDougall Travers Collins, a marketing communications agency based in Rochester, N.Y. “A lot of organizations don’t consider what a response to a price change is going to be,” he says. “Decisions are handed down from marketing or corporate without a discussion with PR.”
There have been similar pricing controversies in the last several months: In September 2011 Bank of America said it would charging a $5 monthly fee for customers who make debit card purchases. After an online campaign launched that encouraged customers to cancel its accounts with big banks, BofA canceled the fee.
In December 2011 Verizon Wireless frustrated customers by disclosing it would impose a $2 fee on those paying their bills by phone or on Verizon’s Web site starting Jan. 15, 2012. After public outcry, the company changed its mind and canceled the move.
PRICE SENSITIVITY
Spurred by the struggling economy, customers are rising up against rising prices. It’s a revolt driven by social media, not unlike the dynamics that drove the Arab Spring, says Phillip Burton, principal consultant and trainer at 280 Group, a product management and marketing consultancy based in Silicon Valley.
So why the embarrassing moments for these big brands? “These companies seem incredulous that there could be a bad response to their actions,” says McDougall.
That’s why PR pros, who know a thing or two about customer awareness and reputation—should be involved early, not necessarily in figuring out an increase but in meetings with executives to plan timing and messaging. “PR can’t be like the people who follow the elephant and clean up the mess,” says Burton. In the case of Netflix, there was “a complete lack of management thinking.” By not doing their homework up front and rushing the decision through, PR had to carry a huge burden of cleaning up that mess, says Burton—and in a rather circus-like atmosphere.
The problem: “People in corporate are surrounded by yes men,” says Burton. “They get positive feedback loops, are thinking about profit and, meanwhile, nobody bothers to ask the question, “Will our customers accept this?’”
SOFTENING THE BLOW
Its times like these that remind PR pros why they need a seat at the table, says McDougall. That kind of involvement will enable PR to soften the pricing blow to customers far in advance.
For example, Starbucks’ recent price increase on its drinks was rolled out slowly by region. “Start conversations with customers months before,” says McDougall. And, think hard about what the justification for the increase will be, and if it will fly with your stakeholders.
Other pricing strategies from McDougall include:
• Run a price analysis. “Better organizations will determine that X percent might have a problem with a price change, and you’ll lose Y percent of customers,” says McDougall.
• Offer options. Unbundle products and services, and offer them a la carte.
• Give some price relief on other products. “Some products have higher profit margins,” says McDougall. “You can reduce their prices.”
PRICE SILENCE
Then there’s the philosophy of staying under the radar. Rodger Roeser, president of The Eisen Agency, thinks not communicating a price hike at all just may be a good thing. “If it’s a consumer offering, there’s not a whole lot of positive things to proactively say about raising prices,” says Roeser.
Or, you could be in an industry selling goods like tires. Ed Markey, VP of PR and Communications, North American Tire at Goodyear Tire & Rubber Co. admits that pricing is a sensitive issue. With a product that is largely composed of raw materials like rubber, carbon, steel and oil, prices do change, but instead of issuing a press release or making a public announcement, Goodyear notifies its direct customers.
However, in the pure B2B world, communicating price changes is a must, says Roeser. (see sidebar for Roeser’s B2B price communications tips).
Whether B2C or B2B, Phillips says there are lessons to be learned from the most recent pricing crises, and PR executives must study BofA, Verizon and Netflix, understand the issues they faced and present those findings to the C-suite. If you do nothing you might pay a steep price. PRN
[Editor’s Note: For more articles on financial communications and reputation management, visit PR News’ Subscriber Resource Center.]
CONTACT:
Mike McDougall, [email protected]; Phillip Burton, [email protected]; Rodger Roeser, [email protected].
Follow Scott Van Camp: @svancamp01