Eek! Price increases from several of your suppliers! Your
customers won't like that. How do you manage to pass on that
price increase without losing business or giving away margin
dollars?
This is becoming a major issue for distributors. The economic
pendulum has inevitably reached its apex and begun to swing
back in the other direction. In many industries the pressure
to reduce prices is coming to an end, being replaced by upward
pressure on prices. If you are like most segments of the economy,
there have been more price increases announced in your industry
in the last three months than in the last three years combined.
Unfortunately, many sales forces are peopled with individuals who
have never lived through a time of price increases. They have no
frame of reference from which to view it, and no experience on
which to draw.
Anxiety abounds: "Will the customer refuse to accept it? Or
solicit prices from a competitor? Will I have to give away
gross margin and absorb the price increase in order to keep the
business?" These kinds of doubts lead to anxious and intimidated
sales people, declining sales and shrinking margins.
Not a pretty picture. Yet, as in any sales problem, there are
a set of proven practices and strategies that will make this
process of managing and communicating price increases less
threatening. Here's a series of seven specific ideas to help
you effectively manage price increases.
1. Set up the situation.
The announcement of an 8% price increase on a major product
line shouldn't come unexpectedly out of the blue. Of course the
customer is going to react strongly to the suddenness of the
information. Nobody likes to receive price increases, and even
worse, nobody likes to receive them without any indication that
they are coming.
It's like the day I received a bill for health insurance which
was 60% higher than the previous month was. No prior notice,
no hint of the increase, no letter explaining it was on the
way, no preparation - just a much higher premium. I reacted
conventionally, and immediately picked up the phone to complain
and solicit other sources. The sudden nature of the bad news
fueled my negative reaction just as much as the details of the
increase.
Don't let that happen to your customers. Don't wait until the
price increase is a fait accompli to inform the customer. Weeks
before, have a conversation with that customer about the trends
in the economy toward more price increases. Share the big
picture with him. Then mention other price increases that you
have received in the past few months. Be specific with names of
manufacturers and products to which he can relate. Mention the
soaring price of oil and the inevitable downstream effect that
has on all kinds of products. Mention that you are expecting an
increase from XYZ component or manufacturer.
Build into your customer the general expectation that prices are
going to go up, so that when the deal happens, he isn't blind
sided by the information.
2. Prepare with details and substance.
You don't want the customer thinking that it's just your word
that the prices are going up. Bring the details. Have a copy
of the letter from the manufacturer indicting the price
increase. Be prepared to communicate specific details. Don't
say, "Transportation charges have gone up about 20%." Instead
say, "Due to the rising cost of fuel, our inbound freight
charges have been increased by 19.1% from one truck line and
18.6% by another. Here's the letters from each of them informing
us of the increase."
This is a great time to have the manufacturer's rep come with
you. Let him/her communicate the bad news to the customer, while
you look grave, concerned and sympathetic in the back ground.
It's always a good idea to have someone else, other than you and
your company, as the source of the price increase information.
This conveys to the customer the fact that you are not raising
prices; you are reacting to your prices being raised. That is
a significant message to get across.
3. Try to inform your contact's boss of the price increase.
You want to avoid this scenario: You pass on a price increase
to your key contact. He/she is fully aware of your need to pass
along the increase. However, when he tells the boss about the
price increase, the boss, who doesn't know all the details,
reacts by directing your key contact to shop for a better price,
or refuse to pay the higher price.
Instead, you be the bearer of the bad news to the boss. Handle
the sales call in the same way that you did with your key
contact - lots of detail, with a third party being the source
of the price increase information.
The result may or may not be the same, but at least you haven't
put your key contact in the difficult position of defending his
decision to continue to buy the product from you.
Also, it may be that the boss is likely to be a bit older than
your key contact. If that is the case, it's more likely that the
boss has lived through a time of regular price increases. It will
come as less of a trauma to him, because he has seen it before,
then it will to the younger, less experienced contact who may
have, like your many of your sales people, no experience with
price increases.
4. Give at least 30 days notice.
Don't ever communicate a price increase after the fact. And
don't wait for an order to say, "Oh, by the way, the price of
that is now...." Instead, give the customer 30 days to enter the
information on their computers, to adjust their purchase orders,
and to consider alternatives.
Be sympathetic to your customers' situation. This is a case when
the golden rule, Do onto others as you would have them do unto
you, should be your guiding principle.
5. Take the initiative and offer alternatives.
If you sense that the price increase is going to prompt the
customer to search for an alternative, take the initiative and
offer an alternative. Do a little research. If the company is
buying the high priced option, and that is going up by 6%, as
you transmit the details of the price increase, suggest that
he may want to review a less expensive alternative. Have the
alternative product ready to discuss with the customer.
This does a number of things. It communicates to the customer
that the price increase is a done deal - the only option is to
buy a product of lesser quality. There is no option to beat
down the price increase. So, you get the customer thinking of
alternatives.
Secondly, it allows you to decipher the mind of the prospect.
If given the option of considering a less expensive alternative,
if the customer shows no interest in the option, it's a good
indication that he's going to accept the price increase, and not
shop around.
Third, if the customer bites on the less expensive alternative,
then you are still in the game. It's better to retain the
customer with a less expensive alternative, and maybe loss a
little sales volume and gross margin dollars, then it is to
lose the customer and walk away with nothing.
6. Make it easy for the customer to implement the price
increases.
Make it easy for him to input the new information on his
computer, to adjust his purchase orders, to note his requisition
cards. The easier it is for him to implement the mechanics of the
price increase, the more likely he will do it. If the customer
is buying 15 items in a line from you, don't just say the prices
are going up by 6%. Instead, give him a spread sheet with each
of the item numbers on it, the old price per unit, and the new
price per unit.
If you make it difficult for him to implement -- he has to look
up the item numbers that are affected by the increase, he has to
figure out the new price of each item, he has to communicate it
to the using department, etc. - you make it more likely that
he'll balk at that effort and resist the price increase.
7. Be confident and matter of fact.
Price increases are a fact of life at certain points in the
economic cycle. Nobody likes them, but no one customer can stem
the tide. So, your customer has to adjust to the fact of rising
prices, just like you and your suppliers do.
Understand that. Be confident in it. If you are tentative, timid
and intimidated by the price increase, you'll stimulate lots of
push back from the customer. That push back is doomed to take up
a lot of your time and the customer's time. You'd both be better
off just accepting the fact of life that prices are going up,
adjust, and go on with your business.
That should be your attitude. Convey it in your demeanor, in
your attitude and in your conversation. Be confident and your
customer will likely react in like manner to you.
Remember, no one likes price increases, but they are a fact of
life. As a professional salesperson, you can manage this process
with excellence or you can allow it to upset you and your
customers. Implement these seven strategies and you will handle
the inevitable price increase with finesse and confidence.
|
