Issues Small Business Owners Face Regarding Overpricing 🐖

Overpricing is becoming a real headache for small business customers who feel they’re not getting their money’s worth. This can harm loyalty, especially for businesses that rely on solid relationships and perceived value. For small companies, keeping customers satisfied is crucial, as unjustified price hikes can cause frustration and drive them away. Being transparent and fair with pricing is key to keeping those valuable connections.

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Small businesses often overprice to cover rising costs or increase profit margins. However, this can backfire. So, how can businesses avoid alienating their customers? What steps can they take to manage costs effectively without resorting to overpricing? 

In this article, we will discuss overpricing in small businesses. First, we will examine Canva’s recent price hike, its impact on small businesses, and the pricing insights they can learn from this case. Next, we will explore how small businesses can effectively avoid perceived overpricing. We will argue that overpricing poses risks, including the potential to alienate loyal customers and harm long-term business success.

At Value Culture, we believe in the importance of balancing perceived value with customer expectations. By the end of this article, you will understand how to avoid the risks of overpricing while maintaining customer trust.

Is Canva for Teams Price Increase a Sign of Overpricing?

Canva’s recent price hike, which boosts costs for its Teams subscription by up to 300%, has raised serious concerns among small business users. This sharp increase has left many questioning the value they’re getting. For small businesses that depend on Canva for design and collaboration, these higher costs come with no clear explanation.

Users are unhappy with the price rise and some are even considering canceling their subscriptions. They feel frustrated, seeing the hike as a way for Canva to take advantage of their dependence on the platform rather than offering real, added value. This situation raises important questions: (1) Is overpricing becoming a common trend? and (2) What lessons can small businesses learn from Canva’s approach?

The definition of an overpriced product or service is one whose price exceeds its perceived value or the typical market rate for similar items. The situation is exacerbated when companies raise prices without giving clear, extra benefits in return. This tactic can push customers away, especially when the hikes are sudden and not well communicated. Customers might feel they’re paying more without seeing improvements in the service or features they receive.

For small businesses, handling price changes carefully is crucial. Instead of making abrupt increases, they should adjust prices strategically and transparently. It’s important to explain why prices are going up and ensure that the added costs reflect real improvements.

This method helps keep customer trust and satisfaction, which are key to long-term success. Regularly reviewing pricing strategies and making adjustments based on genuine enhancements and customer feedback can prevent the pitfalls of overpricing and maintain a loyal customer base.

What a Small Business Raising Prices Should Know About Overpricing

Overpricing can hurt small businesses by driving away potential customers and reducing market competitiveness. High prices may lead to lower sales, which limits cash flow and stifles innovation. Over time, relying on customer dependency to justify price increases can backfire.

Even loyal customers may eventually leave if they feel the value doesn’t match the cost. Moreover, overpricing can harm a brand’s reputation, making it harder to regain trust, even with later price adjustments. Balancing value with customer expectations is key to maintaining long-term business success.

5 Steps for Small Businesses to Avoid Overpricing and Perceptions of Unfairness

Small businesses should adopt a customer-focused approach that balances value perception and resource constraints to avoid grossly overpriced products. Here’s a practical guide:

1. Assess Customer Needs and Value Perception Efficiently

Small businesses can use simple and cost-effective tools like online surveys or feedback forms to understand what customers value most. This allows businesses to align their pricing strategies with customer expectations. For example, a small café could ask customers which products they consider most valuable and adjust prices accordingly. These surveys don’t have to be complicated—short, direct questions can provide insights into whether customers perceive current prices as fair, helping avoid overpricing.

2. Implement Incremental Price Adjustments

Instead of sudden, large price hikes that may shock customers, small businesses should introduce small, gradual price adjustments. This strategy tests customer reactions and makes pricing changes more manageable. A small retail store, for example, can increase the price of a popular item by a small percentage and monitor sales. This gradual approach allows the business to adapt without causing frustration. It also helps manage limited resources because smaller changes are easier to implement and track.

3. Offer Flexible Pricing Options

Providing flexible pricing options, such as tiered pricing or packages, helps cater to different customer needs and budgets. For instance, a graphic design agency could offer a basic package for startups and a premium package for larger companies. This flexibility attracts a wider range of customers and allows them to choose services that fit their financial capabilities. Small businesses with limited capacity can easily implement this method by creating packages that reflect varying levels of service, ensuring each option feels valuable to the customer.

4. Communicate Clearly and Transparently

Clear and transparent communication is essential when making price changes. Small businesses should explain the reasons behind price adjustments through available communication channels such as emails, social media, or in-store notices. A local gym, for example, could notify members in advance about an upcoming fee increase, explaining how the extra revenue will go toward better equipment or additional classes. This transparency builds trust and prevents misunderstandings, ensuring that customers feel informed rather than blindsided.

5. Enhance Customer Relationships through Loyalty Programmes

Loyalty programmes can help small businesses strengthen relationships with long-term customers. Simple rewards, such as discounts or free services after a certain number of purchases, encourage repeat business. For example, a small bakery might offer a free coffee after ten purchases, fostering customer loyalty and encouraging repeat visits. Referral programmes can also be highly effective. These programmes are cost-efficient and easy to manage, helping businesses maintain customer loyalty without significant investment.

Ensuring Small Business Owners Avoid Overpricing

Knowing when to revise pricing is crucial for small businesses. Abrupt increases, like Canva’s recent price hike, often lead to dissatisfaction and frustration among customers. Small businesses can avoid this by conducting periodic reviews of their pricing strategies. Regularly checking in on pricing helps ensure adjustments reflect real improvements, such as better products or enhanced services.

Every small business needs a well-thought-out pricing strategy that balances customer value, business goals, and market conditions. Without a clear plan, pricing decisions become reactive and inconsistent, which can lead to lost customers or missed opportunities. A strong pricing plan sets clear objectives, whether it’s boosting profitability or maintaining competitiveness, and ensures pricing reflects the value provided to customers.

Small- and medium-sized firm employees frequently have their hands full of workloads. But, our findings show that with the right set-up and pricing plans, incremental earnings gains can begin to occur in less than 12 weeks. After 6 months, your teams can capture at least 1.0-3.25% more margin using better price management processes. After 9-12 months, businesses often generate between 7-11% additional margin each year as they identify more complex and previously unrealised opportunities, efficiencies, and risks.

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Bottom Line

Small businesses can learn from Canva’s recent price increase. Perceived overpricing risks losing loyal customers, so businesses must focus on clear communication and delivering real value. Building trust through fair pricing is crucial for long-term success. Small businesses should regularly evaluate their pricing strategies to ensure they meet customer expectations. Instead of chasing short-term gains, aim for sustainable growth by offering value and maintaining customer satisfaction. Pricing with purpose is key to developing strong, lasting relationships.

For a comprehensive view of ensuring the continuous growth of your business, Download a complimentary brochure on How To Drive Pricing Strategy To Accelerate Sales & EBIT Growth.

Are you a small or medium-sized business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 8607 7001.

You can also email us at team@valueculture.com if you have any further questions.