5 Tips for Implementing Price Increases
Minimize lag times. Some companies have customer contracts that hinder rapid price changes, but too often the lag is self-inflicted because internal processes aren’t set up to execute increases quickly. The best companies measure and minimize lag times.
Coordinate Marketing & Sales with Sourcing. If your pricing process doesn’t anticipate cost change information, it will lead to under-pricing and unfavorable contract terms. Planning and implementing a price increase is a team sport.
Measure actual realization of price increases. Most organizations have places where price can leak, and have some people who are incented to exploit those vulnerabilities. Because of alignment issues and limited visibility, one may see:
- - Effective dates of increase pushed out
- - Discounts altered to lessen the impact of a change in list prices
- - Increases waived on high-volume items
- - Credit memos granted after the transaction to negate some or all of the increase
Manage a Price Increase as a Project. Assign specific responsibilities for price increases, and hold individuals accountable. There are lots of implementation details to get right so that actual transaction prices will reflect intended prices.
Communicate the rationale to customers. Provide the information and tools to help your sales people communicate effectively, and use other communication vehicles to reach customers with the message. You can expect lower customer resistance to well-communicated price increases and surcharges. It’s easy to assume you know how customers will react to increased prices or changes in sales terms. One manufacturing company had hesitated to change its freight terms to reflect current realities because of its own internal beliefs about “standard practice in our industry.” Interviews with major customers revealed that there was no single standard practice for freight charges (there were actually four different norms). Moreover, purchasing managers said that they couldn’t believe that more of their suppliers hadn’t come to them yet with changes, given how dramatically freight costs had increased. Revised freight terms helped the company generate a large and quick improvement in profit and cash flow.
Consider Marketwerks' "DaringCaution" approach to optimal pricing. Learn more.