Look Before You Leap: A Price Increase Backfires

I just got off the phone with a company that provides me a
service for which I pay $600 each month.

A couple of days ago I received a letter from them saying
that due to economic factors, cost increases, blah, blah,
blah they were going to raise my rate by a "modest amount".

Ok, so what do they consider a modest amount? I called them
and found out that to them a modest amount was 8-10%; they
weren't sure yet.

I don't know if their definition of a "modest amount" struck
me wrong or if I was just against paying more for this
service, but I took the time to look in the phone book and
find two of their direct competitors.

I called each competitor and got price quotes on the exact
same service.

As you probably can guess, I found some lower prices
(without even mentioning what I was currently paying). And
it turned out that both of the competitors were priced about
the same.

I then called my current provider and mentioned that their
competitors would give me a price of $500 for the same
service; $100 less! They said that they would research it
and call me back.

I got a call a few hours later saying they wanted to keep my
business and would be happy to match their competitor's
price. I gave myself a pat on the back.

But I started thinking about how my current provider
intended to raise my monthly rate by about $50 but ended up
cutting their rate by $100. So rather than creating an
additional $600 of cash for themselves next year, they are
now going to take $1,200 less.

I can't believe that would have been considered a good risk
by anyone. So where did they mess up?

By not doing their homework.

They did not take the time to compare my current rates with
the rates offered by their competitors. If they had (and I
am assuming they didn't because I can't believe they would
take this risk), they would not have sent me the letter
about increasing my rate.

The letter led me to call them to find out the actual amount
of the increase. The significant (to me) price increase led
me to call their competitors.

Before the letter I was content to pay their fee. I hadn't
planned on checking prices and making comparisons. But when
they brought the subject of fees up, I took the initiative
and ended up with a much better deal.

Maybe they were counting on most of their customers to roll
over and accept it. But I wonder how many will now
renegotiate their fees since the subject has come up.

They obviously have different customers on different fee
schedules. So why wouldn't they take the time to determine
which customers should have their fees increased and which
should be left "overlooked" this year.

Customers who were paying close attention to their
competitors fees would probably accept their "modest" price
increase because of the hassle (read: barrier) of switching
to a competitor. Even if they did a price comparison a
small increase is usually not worth the trouble.

I guess the moral of the story is that before you bring up
the subject of increased fees, make sure you know your
customers' alternatives.