Managing a Price Increase

This blog may already be too late.  Take away from it what you will for 2017 and start thinking about a revised pricing process for 2018. 

Field sales reps usually feel the corporate brass would not implement annual price increases if they had to be on the firing line with customers.  Get your executives more involved in the process.  Get out in front of your next price increase. 

The straight facts:

1. It costs more to stay in business this year more than last year.  The costs of increasing governmental regulations, customer quality demands and employee retention and training will exceed the cost saving benefits of productivity improvements.
2. Few customers appreciate any rationale provided in the one page memo from Marketing about the price increase.  It is not about the rationale.  It is about the communication, timing and implementation of the change.
3. There will be pain on both sides.  
4. Price increases will get implemented-sales reps need to get behind it.  It is another source of revenue increase to help reps reach your annual sales plan. 

The steps to a better price increase process require:

1. Review and analysis
   1. Look at your past pricing.   When was the last time you changed pricing?  What resulted from the price change?  Was there a net positive effect to revenue?  What would you do differently?
   2. Research whether your customer (distributor, OEM or end user) changed their standard product pricing.  It will be hard for them to object to a price increase if they follow this same process.
   3. Research competitor’s pricing-do they have price changes?  Determine your competitive price position and know whether you are a price leader or follower.  Is this consistent with your pricing strategy?
   4. Remind customers when you last changed pricing and what has been invested since that time e.g. improvements to product, delivery and/or quality. 
   5. Re-enforce your value proposition.  Have there been feature changes?
2. Concise and crisp communications
   1. Announce the price increase plans to the sales reps 120 days before the change.  Provide them a 15 day period for providing FAQ’s.  They are closest to existing customers and will know the hot buttons.  Provide them alternate scripts for implementing the price increase.  They can also prepare prospects that there is a deadline for current pricing.
   2. Schedule your Executives, specifically the CEO, CFO and VP Marketing to travel to deliver the message to your largest customers 90 days out.  Avoid letting key accounts hear price increase news second hand e.g. from a memo or the billing variance reports.  It demonstrates respect for the relationship.  Listen to their tough feedback.  Use this as a chance to reconnect and reinforce your value proposition for the future.  Remind them you will continue to improve the value prop. 
      1. Know which customers:
         1. You cannot afford to lose-we all have them. 
         2. You can afford to lose.
         3. Develop an up close and personal knowledge of these customers and any possible customer loss that could occur.  Create a tentative “retreat” position from the price increase should it not go smoothly.  Delayed implementation is usually easiest to administer and rationalize In some cases, you may want to encourage key customers to place call off orders ahead of the price increase.
         4. Commit as a team to delivering a superior product/service and ensure the price change is a reflection of this change.   Don’t alter your value proposition in terms of technical support, warranty.  These features cannot be fragmented into customer classes.
      2. Make a general announcement to the rest of your customers, the B’s and C’s.  Inform them why you are changing prices 60 days out.  Use facts, not excuses.
      3. Ensure customers understand that the price increase only makes up for part of the cost increase-the supplier is still shouldering a good portion of the burden.
      4. Remind them that you, the supplier, have absorbed past cost increases and the date of the last price change.   This price increase is really a “catch-up” to your cost increases already incurred.
      5. In some cases, you may want to encourage key customers to place call off orders ahead of the price increase.

3.  Flawless implementation.
      Make sure it is easy for the customers to put in place  The easier it is the more likely they are to    pay for it and move on.

1. Dry run and proof the price increase.
2. Explain how any product returns will be handled and at what price.  Product returns are generally nightmarish anyway-confusing terms makes them a recurring nightmare.
3. Provide a breakdown of new prices-both old and new.  Stick to the implementation time frame.

Other tips:

1. Don’t implement an across the board % price increase.  Determine the net effect of your price increase overall.  If the effect is a 2% and your sales growth target is 5% , you’re only seeking a 3% revenue increase.  Rationalize product pricing in accordance with your product strategy.
2. Don’t whine about the price increase to your customers. 
3. Avoid price increases rationalized solely by your profitability.  Your customers will perceive your relationship as a zero-sum game.
4. Expect pushback.  The buying process has changed dramatically in the last 10 years.  http://www.jimthomasintl.com/blog/using-a-business-development-approach-to-guide-buying-decisions.  Buyers are smart.  They know all the raw material price indices, exchange rates etc. they make up their cost.  They will try to negotiate a way to mitigate a price increase with very available costing knowledge.  

My Mom gave me great advice, “Jim, if you marry for $ you’re going to have to earn it!”  In that same vein, you have to earn a price increase, they do not come free.

Do you want to have a free fifteen minute discussion on your price increase process?  Sign up on my web site http://www.jimthomasintl.com/ or contact me directly by phone.

Good Selling and Happy New Year!