How not to raise prices

I know pricing is a hot topic for folks, and raising prices is something that almost every business should do at some point. I’ve found it really helpful over the years to look closely when companies raise prices and suffer backlash. Betterment recently raise their prices, and they’ve completely dropped the ball on clear and honest communication. It’s a great case study in what not to do.

In many ways, pricing is about trust. In Betterment’s case, as a financial institution to which people are literally entrusting them with their life savings, trust is everything. Betterment is squandering that trust.

  1. They obscure the 67% price increase in an announcement focused on “great new features and human touch” You can see how well this was received via the replies on Twitter
  2. They provide no reasons for the price raise other than the added new features, but the affected customers aren’t actually getting any of those new features. It’s just a 67% price hike.
  3. They grandfather existing customers for 4 months. If you complain, they’ll give you a few extra.) Unless grandfathering customers for a year (or longer, ideally) will put you out of business, grandfathering for 4 months is like a slap in the face. Your existing customers help you get this far, and in many cases, they took a risk by trusting you. Not returning the favor won’t go well.
  4. When people called them out for these tactics, they replied with less than helpful canned responses. (I actually received the same copied and pasted response via email on two occasions because they didn’t even bother to read my email.)
  5. They tried to address the problem by making their copy and paste answers available as an FAQ. “Thanks for trusting us with your life savings. Here’s an FAQ that doesn’t talk about trust at all.” The replies to their tweet reinforce the problem.
  6. They failed to realize that first and foremost this is about trust. Yes, people are never going to be happy with a price increase, but without trust earned through treating customers with respect, you might always just tell them to shove off.

Raising prices is delicate, but it’s not tricky. Treat customers with empathy and respect, and understand that it’s your responsibility to justify the price increase and earn their trust. The more human the response, the more likely they are to understand.

For an example of a great way to justify and communicate a pricing change, check out this message from Saddleback Leather.


It’s interesting, one of my competitors raised their prices by several hundred % recently. They grandfathered existing customers and did try and disguise the announcement with new features which probably stopped a lot of backlash. As they are a VC backed company I can’t help but think the price rise was a cynical grab for cash, which is probably no surprise as their motivations ($$$$) are different to a bootstraped company.

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To Betterment’s credit, they eventually published a sort of apology and explanation of how they screwed up.

It’s kind of buried, but it sounds like they at least understand and appreciate their mistakes.