Introducing a price increase is tough, right?
If your demand is outstripping your supply, then a price increase makes business sense and your audience, although probably upset, will absorb it if they want your product. But it can be especially tough if, and we hurl ourselves back to A-level economics here, your product carries an elastic sensitivity to price. Pushing your price up could negatively impact your top line, so in these circumstances it needs to be managed carefully.
So if you are lucky enough to sell an inelastic product then happy days. Mostly you can inflict a price increase without too much concern, although at a certain point your customers will look for a substitute. However, if, like most of the commercial world, your price elasticity is stretchier than Stretch Armstrong then persuading your buyer that your latest price increase is necessary is even harder than persuading your own sales team that they must break the news.
But how can you ease your buyer’s pain and give them the tools to tell their boss that “you know those nice people who sell us all that stuff, well they are going to charge us more money for the priviledge”!
Uspire hosted an expert panel of 4 highly experienced commercial heavyweights on this webinar, and asked them to lay on the table everything they know about the best ways to deliver price increases and how to prepare their commercial teams for success. Among many other things the panel discussed the best way to guarantee your customer accepts your price increase, boiling it down to these 5 essential factors:
- Provide an early warning to your buyer
Nobody like surprises. Granted, birthday surprises are nice and the odd unanticipated lottery win wouldn’t go a miss, but surprises in business are not good. Surprises in business usually mean a lack of planning and forecasting and do not go down well with the boss. Same applies when introducing a price increase. Introducing a price increase without any prior warning is like a red rag to a bull. Not advised. The introduction of a price increase with a short lead-time will simply put the buyer on the defensive and reduce the likelihood of them willingly listening to the argument and understanding.
If an early warning is not possible because of immovable market forces then mitigate the impact by having No.2.
- Have empathy with the impact on the buyer
Understanding that usually the buyer must report up the food chain and ultimately sell in the price increase to their business, makes clarity and empathy vital to the process. Be as transparent as possible, and if possible introduce your company buyers to your customer buyer. If you sell a product whose price has a number of influences, then introducing the guys who are actually buying the raw materials or ingredients, or buying the logistics, or factory capacity, and helping your customer buyer understand it from a buyer’s perspective can be really powerful.
Having that empathy with your buyer also extends to understanding the relative value of your business to that customer and that buyer, which means you need to do No.3
- Proper customer segmentation
It is likely that your importance and value as a supplier will be viewed differently across your customer base. Understand, therefore, the strategic value you have as a supplier. To which customers do you provide a strategically vital solution and to which are you less important? Segmenting your customers this way can help determine the way in which you introduce the increase and understand the flexibility your customer has in how to manage their sourcing.
When you anticipated the above you then need to work on No 4.
- Scenario planning
Map out the likely negotiation that may occur. If you introduce your position as x, then you need to anticipate how your buyer will respond. What is your fallback position and how do you pick up the negotiation again if you are backed into a corner. Think of this as a game of chess , but try to avoid the check mate.
Actually mapping out the negotiation can prove vital and is essential as a part of No 5.
- Rehearse
For particularly important conversations with key accounts it is important to run practice negotiations with your team. Have people role-playing the buyer and attempt to anticipate all likely scenarios. Place yourselves in the shoes of the buyer and say “what do they need to know to understand?”.
Helping your commercial team develop first-class skills is an obvious pathway to commercial success. Uspire webinars bring together highly-able commercial leaders to share their experiences and debate best practice, the diversity and breadth of experience is what we believe to the best way to problem-solve. And it is this principle of shared practice that is the focus of The Network.
The Network draws commercial leaders from many varied sectors and professions and gives them a confidential forum for shared learnings, one-to-one business coaching and expert consultations. The Network is organised into regional POD’s to help forge relationships and build in local and cultural similarities. They are all chaired by highly experienced business leaders and are suitable for leaders across businesses of all sizes, from the small and beautiful to the big and bold.
To understand how The Network can help your professional development then visit www.uspire.co.uk/the-network or call 01372 897 667