Pricing Strategies for Today’s Supply Chain Challenges Q&A

by | Mar 15, 2022 | Pricing

HomeBlogPricingPricing Strategies for Today’s Supply Chain Challenges Q&A

For our February Webinar, Joanne Smith, CEO at Price to Profits Consulting, explored strategies for navigating today’s supply chain challenges by executing price and policy changes without hurting your long-term customer relationships or undermining your value-pricing principles. After the session, she answered questions from the webinar audience. In this blog, we share her live answers.

What is your advice for B2B companies communicating a price increase knowing there may be more down the road?

As you know, anytime we’re increasing communication is going to be so critically important and the more open and trustworthy we go about doing it – the better. Your leadership ought to be announcing these things with a minimum of a customer letter signed by a high-level person. Also a public announcement, if you can. But salespeople could and should be letting their customers know that you are in a planning cycle, and that you expect increases to come because of all the inflationary supply chain issues. And as soon as they know what that amount is, it’s going to be passed along.

Giving a little heads up to their customer base – and I think being clear and honest with your customer base – that we don’t have a crystal ball on this hugely volatile year in just about every single industry across the US. We’re seeing these unprecedented inflation and supply chain issues. To let them know that we can’t see this any better than our governments or the experts can see it.

Based on your experience what is the best way to define the value and communicate reasoning for a price increase to a customer?

We always want our rationale for whatever our price move is. If it’s because we have a brand-new product and it deserves a premium, the more we can visually show in nice, easy ways why we deserve that particular price, the better.

We’re better off in today’s world where it’s mostly broad based. It’s not product by product. It’s not value so much. It’s strategically getting our customer base up. Then we have to really articulate what’s what is our rationale? What costs are going up? Or is it the tightness of the market? It’s more likely that they’re going to accept it if they realize it is real and competitors are more likely to follow if they hear about it and they understand your reasons. And they’re thinking “I got those same darn reasons, and we ought to be acting in the same way.” The more we can do that effectively with our rationale, the more it will seem fair and appropriate.

In your experience, what do top performing sales reps do in communicating price increases that less experienced ones do not?

Number one, a strong salesperson recognizes when it is fair and appropriate for their company to be moving price. And as a result, they usually have the confidence to hold firm. They do not back down and hurt their own company’s health for the customer. If you’re not confident in front of that customer, they’re going to sense it. They are going to work you over until they get you to back off. But let me just take it a step further when I look at some of the best salespeople, not only do they do a good job of clearly communicating the reason for their pricing, they often hold firm to the fact that’s a fair price. They also look to how they can help their customer pass that along downstream as an example, or coach their customer.

I was with a group, that’s a perfect example where their customer base was less sophisticated, and might not quite have a good understanding of what’s happening in the world and how it’s going to affect them. And in this particular business, many of their customers would lock in multi-year contracts, put out bids and quotes for contract their construction work as if their prices from their raw materials were going to be held. Advising your customers to rethink their own strategy, to make sure that they don’t lock in long term on prices, that they have price openers or price protection given these volatile times.

In some of these cases, the salespeople have offered to go to the customer’s customer, if that helps to explain to that customer base why this has to happen and why it is happening to you. We’re going to hold firm on our price, but we’re also going to have empathy for our customer and anything we can do to help them while without giving up our price – that’s the thing.

Channel partners need to be consulted and trained as well. How do you recommend going about doing this?

It’s not unusual that some of my clients will hire me to train their distributor arm if they don’t understand the messages and how their own behaviors are affecting the market. Usually, the distributors are a little bit less skilled at understanding those sorts of things. We have to communicate really clearly with them. The thing we do not want to do with distributors is to not take the increase and they’ll go back to you and say, “well, we can’t do it here. You have to give me relief, because I need to pick up this business or I need to retain this business.” We can’t bail out our distributors that would be enabling them to not do what they need to do, which is fairly pass the increase alone.

Have you seen clients of yours alter how they price and deliver services in response to higher input costs?

I don’t know if I can see that quite directly, but clearly even if you’re in the service industry, you might have more labor costs that you need to pass on just like you had a physical product. But what I will say, I see some companies surcharges – like they might do freight surcharges. They might do import surcharges, supply chain, literally supply chain surcharges – literally charged separately for their technical service or their special analysis or things that they do beyond the product during these times to compensate.

I personally am more of a fan of making sure you get it into your base price and not adding on a non a bunch of services or surcharges, because those things are more difficult to manage and to retain longer as you go through.

My company has decided to hold prices for now. What can we do (in terms of customer communication) today to cultivate trust with the customer, and enable smoother pricing conversations down the road?

With rising costs and tight supply and if you elect to hold to build trust with the customer, I might comment that it’s a double-edged sword. You might be creating a distrust with your customer and certainly with your competitive base. If you got competitors raising price and you are holding, even if you think you’re doing it for all the right reasons, and you’re willing to take that margin hit in your business, two things happen. First, your customers are probably looking at you. Like all your competitors are raising price. They have all these cost issues. You must have them. They are now looking at you as probably desperate for share – afraid to move price.

Now they know they can beat you up on price, because you won’t stand up with integrity for your own health. Or they’re thinking, “they must have such huge margins that they can afford to absorb all these costs. I better beat ’em up more.” So now you got customers that are just going to look at you as somebody that they want to really beat up to see how far they can work.

Your competitors, on the other hand, now are not able to raise price near successfully because every customer, like your key competitor over here, is not raising price. There’s no way I’m going to take yours. I’ll jump. Your competitors back off their price increase because of your behavior. Now three months later, your management’s beating you up because your margins are squeezed and you decide to go out and raise price. Well, it’s too late. Because your customers your competitors have given up, and you go out by yourself and your customers are like, “nope, your competitors didn’t raise.”

It creates a downward spiral of distrust with competitors and customers that will hurt you for the long haul. If it is the right thing and you have the cost and you have the tightness, then you ought to be doing the fair thing for the health of your business, not greedy, but fair and doing it in a way that so that your whole competitive base raises up and remains healthy.

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