Cushioning the Blow: Reducing Customer Attrition in Response to Price Increase Notifications

Price increases can elicit a range of negative customer responses, from dissatisfaction to complaints, exits, and even boycotts. Practicing managers and academics agree that firms must justify their price increases, and consider three justification types—cost, market, and quality—as the primary means to do so. Yet, the comparative effectiveness of these justifications in reducing customer attrition remains unknown. The authors collaborated with a multisite Canadian storage provider to design and implement three experiments. Study 1 is a randomized field experiment involving ten cohorts of 1,626 actual customers, demonstrating the effects of cost, market, and quality justifications on customer attrition and variations in these effects across levels of justification concreteness, price increase percentage, and price increase dollar amount. In marked contrast to prior practitioner recommendations and academic research, market justification is found to result in the lowest customer attrition. The authors use heterogeneity in the effects of the justifications to demonstrate that customers’ switching-cost perceptions explain this finding. Studies 2 and 3 are online scenario experiments that further examine how these justifications affect customers’ perceptions of switching costs and fairness. Together, these studies provide important insights to firms seeking to cushion the blow of price increases.