Sunday, January 1, 2012

How To Raise Prices and Avoid a Social Media Backlash from Your Empowered Customers

The equation for business in 2012 is unmistakable and sobering: Trust in brands is eroding, consumer economic confidence is low, and the ability of frustrated consumers to fight back through social media continues to grow. This past year saw a number of high profile brands attempt to implement fees or raise prices, only to backpedal and grovel after facing a scathing flood of angry and vocal customers.

A lot of time and money is wasted planning, executing and reversing a large-scale business policy, but many of the companies who reversed course lost more than time and money--they lost customers and market share. Bank of America attempted to implement a fee for debit card users, contributing to an exodus of 650,000 bank customers to credit unions in just four weeks--more than the 600,000 customers who joined credit unions during the entirety of 2010--and that was before the Bank Transfer Day organized in social networks. Netflix tried to raise prices by separating their streaming and DVD rental business, resulting in a loss of 800,000 customers in a single quarter.

These two companies didn't just lose some reputation--they lost financial value. Both companies "listened to their customers" and rescinded their derided policies, but that failed to prevent a significant loss of market value. BOA shares are down 10% since it announced its debit card fee and Netflix shares have lost 55% of their value since the company's September 19 announcement. In the old days, angry consumers faced with price increases merely switched brands; today they can organize, attack, broadcast, influence, switch en masse, and adversely affect the value investors place on the brand's future.

It is vital that business leaders realize the trends we are seeing as we move into 2012 are not new or temporary. Trust in brands has been eroding for more than a decade--according to the Young and Rubicam BrandAsset Valuator, consumers in 2008 voted just over one-fifth of brands as trustworthy, less than half the 52% of brands considered trustworthy in 1997. Meanwhile, consumers are cautious to spend due to an economy that no one--particularly not Fed Chairman Ben Bernanke--expects to improve any time soon. And, as consumer adoption of social media grows, so does the number of social media crises faced by business, according to Altimeter.

In 2012, the potent combination of consumer frustration, economic woes and social media empowerment may not simply affect individual brands; these forces could reshape entire industries this year. One consulting firm surveyed 5600 consumers about the brand vulnerability of retail banks in the US and predicted growing customer anger could result in the 10 largest banks losing $185 billion in deposits during the next 12 months--nine percent of total retail deposits at those banks.

Verizon's one-day reversal this past week only underscores the seriousness of the business environment entering 2012. Verizon announced plans to charge a fee for single bill payments online or by telephone. The uproar was so great that in just a single day, Verizon rescinded its plans. Not only were consumers contacting Verizon to complain, but they were broadcasting their frustration in social media. Hundreds of consumers turned an unrelated Verizon Facebook post into an impromptu forum for venting frustration and 160,000 consumers signed an online petition at (created by the same young woman whose  online petition contributed to Bank of America's woes.)

So, does this mean companies cannot charge more for their products or institute new fees? Of course not, but there is no longer any excuse for an organization to be surprised and suffer losses due to these sorts of consumer reactions. Consumers are feeling more empowered and are seeing results from their coordinated actions in social media, so 2012 is going to be rocky for businesses that do not embrace new ways to engage, appease and enlist the empowered consumer. As Edelman Digital's Michael Brito and I discussed on Twitter, the steps to avoid a social media disaster are not difficult:

CONSIDER ALTERNATIVES: Is raising a fee or a price the only possible business decision given the circumstances? Can consumers see this as essential and fair, or will they only view your decision as a way to extract more money for shareholders?

For instance, rather than implementing a $2 fee for customers making single bill payments, could a reasonable alternative be a $2 discount for people who switch to automated bill pay? In the intermediate- to long-term, the result is the same--a two-tier pricing system that encourages consumers to embrace cost-saving methods. At a time when consumers are seeking any way to save money, offer the carrot and not the stick to motivate consumers.

Another way to avoid social media disasters is to focus fees and price increases on the few that are raising costs rather than your brand's entire customer population. TD Bank has faced little backlash to their recent fee increase, and the difference may be that the bank targeted the new fees to those few customers--just one percent--who make excessive savings account transfers and thus increase costs. TD Bank has seen little social media backlash--on the same site where Bank of America and Verizon have faced large-scale petitions, the one created to complain about TD Bank's new fees has the support of just the individual who launched the petition.

Another thing to consider is how consumers will react. Consumers never like price increases, but many of 2012's social media reactions weren't just gripes about higher prices. Much like politicking candidates, consumers often seek to frame company decisions into a sound bite. Customers were incensed that Bank of America would charge "me to access my own money in my own checking account." Verizon customers thought they were "helping the company and the environment" by paying online rather than sending physical payments through the postal mail. The substantive negative reactions had as much to do with the perceived context as with the fees themselves.

EXPLAIN: Consumers are not unreasonable, stupid or powerless. They can support a price increase if it is explained in a way that respects their knowledge of the world and power in the brand relationship. If you find you are unable to craft a reasonable, consumer-facing justification for a new fee or price increase, that should be a big, blinking "danger ahead" sign.

Bloggers hammered Netflix for not explaining the reason behind their price increase to customers using both the streaming and DVD services. It certainly defied any logic that with inflation running under 4% a company would need to increase prices 60% in one fell swoop. Did Netflix underprice their services in the first place? Did the streaming or DVD rental business models change due to some unexplained market change? We don't know because Netflix didn't explain it.

The reasons behind Verizon's fee remained a mystery to its customers, mentioned but not explained in a single sentence in the company's press release: "The fee will help allow us to continue to support these single bill payment options in these channels and is designed to address costs incurred by us for only those customers who choose to make single bill payments in alternate payment channels." Why are costs higher for single bill payers? Are costs really higher for people who make single bill payments online versus showing up at a Verizon store with cash in hand? We don't know because Verizon didn't explain it.

The days of implementing a price or fee increase with little to no explanation and then weathering a tiny customer tempest in a teapot are pretty much over. It's not that that approach cannot work, but it is risky and unnecessary. The B2B world, where single customers have always had greater power, has known this for some time, but B2C brands are not use to worrying about empowered consumers. B2C brands would be wise to learn best practices from those B2B brands that have always had to explain price increases and put them into a context that customers can accept. For brands hoping to charge more to customers in 2012, explaining more and testing the message has never been more important.

ASK AND ENGAGE: Consumers may not be excited to help you figure out ways to charge them more money, but they will help brands solve business problems and reward brands for treating them as partners. For example, which sounds better to you: "We're raising fees for people who pay by credit card" or "We incur fees when customers pay by credit card and this increases costs for all customers, which may not be fair. How can we encourage our customers to help us keep prices low?" When you ask customers to help save you money, they may answer "tough luck" and suggest you eat the costs, but wouldn't you rather know this before you announce a new pricing policy that consumers reject?

Starbucks saw the cost of coffee increase and successfully implemented price increases in 2011. Of course, some complained when their "Venti" price jumped a couple of dimes, but the company avoided damage through its use of social media to ask and engage. It maintains a site asking customers for suggestions and has the 32nd most popular page on Facebook where they engage 26.5 million fans. This permitted Starbucks to surf through the year in fine form--with the Dow up 5.5% in 2011, Starbucks shares rose over 40%.

RESPECT: Consumers may react as much to the lack of respect businesses show when increasing fees as to the fees themselves. Language matters, and turning to "marketing speak" rather than candor can make an already difficult communication challenge even greater. Verizon called their new very inconvenient fee a "convenience fee" and Netflix's blog post announcing a 60% price increase included the phrase, "lowest price(s) ever" three times.

Consumers are perceptive and well informed, and they will react when brands fail to speak with them in an honest and forthright manner. A price or fee increase is a risky proposition in this business environment, so don't add fuel to the fire with language better suited for press releases of the past than for a conversation with the empowered consumer in 2012.

TRANSPARENCY: Finally, it is high time in 2012 to understand what that overused but seldom understood term, transparency, means in the social era. Some companies seem to define transparency as "When the customer base erupts and overruns our social channels, we'll have a discussion with them." That sort of reactive transparency is better than none, but avoiding reputation and business problems requires proactive transparency in 2012.

When you ask a newlywed why they chose their spouse, they will answer, "s/he makes me laugh" or "s/he brightens my life," and not, "Because s/he will tell me bad news so we can have a discussion of how to solve problems." The same thing is true when consumers "marry" brands in social media--they will not say that they connect with brands in order to "To hear bad news and have a discussion about price increases," but as with any relationship, consumers do not want to be lied to or managed by their favorite brands.

Your Facebook and Twitter feeds are not just a means to broadcast advertising in a different form. Just as people react when they find their spouses have been spoon feeding them happy lies while hiding growing financial problems, your customers will be offended and incensed if you engage with them on Facebook about marketing programs while sneaking a price increase into your PR newsroom. Transparency in 2012 means having the guts to announce your price increase on Facebook and Twitter just as you would your latest promotion.

If that sounds risky, then you need to reread the preceding paragraphs. If you have considered alternatives, explained, asked, engaged and respected your consumer, then discussing your business environment and the reasons why a price increase is necessary should not be threatening. Consumers may decline your proposal in a strong and unified fashion, but unlike the customer-sapping stock-depressing embarrassments seen in 2011, your brand can walk away from that discussion with customers having a stronger relationship with the brand. Today's "no price increase" may be tomorrow's higher margins powered by loyal advocates. Handled right, customers won't divorce your brand but instead renew their vows.

A brand has always been a relationship, but too often it has seemed that relationship is defined by what happens at a cash register. That never was the case--the relationship between brand and consumer is consummated well before the purchase, when consumers associate themselves with brands they respect, are proud of and say something about themselves. Communication is the key to any relationship, and in 2012 it has never been more vital for brands.

While the consumer mindset is sobering this year, that does not mean the relationship with your brand cannot be stronger than ever. The difference between a headline-grabbing social media backlash and a successful implementation of a price increase or new fee depends more on how you do it rather than what you do, and how you do it depends more on what your brand stands for than what its prices and fees are.

No comments: