Pricing Strategies During Economic Transitions Q&A Part 2

by | Mar 20, 2024 | Pricing

HomeBlogPricingPricing Strategies During Economic Transitions Q&A Part 2

For our February Webinar, Joanne Smith, President at Price to Profits Consulting, shared actionable pricing strategies for periods of economic transition and uncertainty, best practices in slowing price decline during tough times, and ways to proactively capture value as macroeconomic conditions begin to recover. After the session, she answered questions from the webinar audience. In this blog, we share part two of her live answers.

What factors do you need to consider when you primarily sell through distributors? Can we do anything to alleviate concerns that our distributor partners won’t be able to react to pricing changes or communicate price change rationale in line with our strategy?

Some of the companies I have worked with to train their direct sales team have told me, “oh, but our distributors are the ones messing the market up. We go high and they don’t follow.” Some of them pay for me to then train their major key distributors so that they have the confidence to be able to move price and understand the strategy behind these changes. Training value with your distributors is key. At a minimum, you had better have written rationale and give them all the tools so that they can at least talk to their customers and understand what’s happening. Make sure that you are not pricing so low that they can undermine you in the market. Training can be quite good, especially if you have just a couple of big distributors. However, if you have a thousand different distributors, that’s a little harder.

Do you believe annual price increases are sufficient or do you recommend more frequent updates?

In stable times, once a year is probably fine for most specialty-type businesses. But you saw that chart that I started with. We rarely are in stable conditions and for specialty type businesses (putting aside commodities, who might be doing stuff on a daily basis on their spot market), I think you absolutely should be considering two or three times per year. Once you get above three, there is data that would suggest that buyers begin to look elsewhere. Two or three per year makes sense during major economic swings, but not during those rare times where we have just the little economic ripples.

How frequently do you see businesses manage transitions poorly?

About 50% of companies in the past few years did not do a good job. They either barely moved price or didn’t move it nearly enough in the 2021-2022 timeframe. I would suggest that Europe was a little bit worse than the US. They had a little tougher dynamic, but they also tended to be a little bit more conservative and scared to make bold moves. I would say 10%-20% at most completely held their margin and/or improved it a little bit, whereas most of them were positioned such that they could have and should have.

Can you share any best practices on how to manage price vs. volume trade-offs? How do you teach this in your skill-building training courses?

When I do a day and a half training, I do it in a very business-specific way because we’re going to train and apply the teachings from a strategy standpoint. We practice raising or not raising price, holding by major product, family, or segment, and we do the price share change right there. We practice the tough questions and how we’re going to answer those. We try and understand buyer types and which ones are the most vulnerable price buyers that we might have, versus those that really value us.

The thing about the training course that is so powerful is that it aligns the business – marketing and sales, strategy to execution. We start to understand each other, and we all get our hands on what we’re going to do. I can’t tell you how many times I hear things like “within two weeks we made a million dollars,” or “within three weeks there’s $2m we think we’re going to close” and “we’re up $5m within six weeks.” I get calls from salespeople – I just had one a couple of weeks ago where the afternoon after we finished, a salesperson who had been so scared about a price negotiation, who that afternoon negotiated a situation where the buyer said he would only pay $650, he got them to pay $1250 using the techniques right there in the course. So this course has a big impact.

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