Charging Too Much Based On Existing Customer Pool Only

Charging Too Much Based On Existing Customer Pool Only

It was interesting reading comments today about people who were critical about a company increasing its rates so much to the point where people feel like they were being gouged. Apparently the reason for doing so was because of the increase cost in running the business plus they simply weren’t acquiring new customers. Therefore, the solution was to charge existing customers more in order to maintain standard operations.

This is a mistake I think and I read a great example of this. Imagine there was a small grocery store that decided how much money they wanted and needed to make each month in order to have a profitable business. There are other grocery stores that sell the same items such as an apple for $5 a bag. Because they estimate that there are only going to be very little people shopping at their store they decide the best way to stay alive is to charge people $200 per bag of apples as all they would need is to sell a few in order to have a stable business. It makes sense just based on the numbers right?

Of course we would all say that is a ridiculous thing to do. But in many ways, that’s kind of what it’s like when companies increase rates on its existing customers as the primary method to maintain profitably. The more logical and practical thing to do is to find ways to increase market share or to reduce expenses. Digital service providers are more prone to simply increase rates. There is a time and a place such as adapting to inflation, but focusing on squeezing out your existing customer base doesn’t sound like a good long-term direction. You are in a sense ignoring why you aren’t getting as many customers while staying too attached to your old ways of doing things.

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