|Communicating a Price Increase
By Mark Hunter
No one wants to be the bearer of bad news. So how do you tell your customers that prices are going up?
Even the most sales savvy among us have had to fight back the nerves that arise when we're about to tell a customer about a price increase. It never makes for an easy conversation. When relaying a price increase in a business-to-business environment, remember that your customers have probably had the same discussion with their own customers. A company exists only as long as it earns a profit and it can only do that if it delivers a quality product or service at the right price. The key to any conversation about raising prices is emphasizing that the increase will ensure product quality.
To prepare your strategy for announcing a price increase, ask yourself the following questions:
1. Does the customer take your product/service and add a standard percentage increase in price when selling to their customers? If so, you can point out that your customer will make more money by taking a standard percentage of a higher amount.
2. What percentage of the customer's business is your product/service? If the percentage is small, tell them that the amount of increase is only a small percentage of their total business. If the percentage is great, then emphasize that the price increase is necessary to maintain the level of product quality necessary for them to serve their customers.
3. Has the customer faced any price increases from other vendors? If so, try to identify the percentage range of the increases. If yours falls into the low end, then you can point out that your increase is smaller compared to the others. If your increase falls in the high end, you can either explain how this is the only increase you expect to make, or suggest that you wouldn't be surprised to see other vendors initiating another round of increases.
4. How does the customer view you and the products/services you sell? If you have a quality reputation and record, then you can emphasize that the increase has been carefully considered and it is only being taken to ensure continued quality. If you have a spotty record with the customer, then you should stress how the price increase will allow you to begin addressing some of the issues in question. You'll now be able to improve the overall quality of service they have been receiving. Of course, these statements must be backed up by a firm commitment.
5. Will the customer raise an issue with the price increase? Be prepared to show documentation of how your costs have escalated and how other companies are experiencing the same increases. For example, with the rising cost of oil many companies that use petroleum in the manufacture or transportation of goods are most likely increasing prices. When having this discussion, be sure to show empathy for the customer, but remain firm in what you're saying. If the customer senses any hesitation on your part, he will likely try to exploit it in the form of a price concession from you. Be prepared to outline the steps your company has taken in an attempt to avoid a price increase. This can include ways you've already cut costs or how the price increase is the only way to maintain the quality and service the customer expects. A final point to emphasize is the time lag between this price increase and the previous increase. Having information available concerning the rate of inflation during that specific time period may also help diffuse the issue.
6. Why does the customer buy from you? Use these reasons as reinforcements when talking about the price increase. Also have ready at least two key needs of the customer that your product or service satisfies. Be sure all of your strategic information about the customer is up-to-date before the price increase is announced.
7. How much business is at risk with this customer? Sometimes, we can get carried away thinking that if we raise prices, we'll lose the customer, even though this is rarely the case. Think through what steps the customer would have to take to move to another vendor. Many times the work involved in switching is not worth the effort, and the business is less at risk than you may think.
Here are some best practices to employ when executing a price increase:
1. Give the customer lead-time. Give the customer enough notice to allow them to make adjustments in their information systems and to place at least one more order at the existing price.
2. Avoid showing favorites. Pricing integrity is always essential, but especially so during a price change. Do not treat particular customers more favorably than others. Different pricing levels are fine as long as they can be logically defended so that a customer who is not receiving the price break can understand and accept the price change.
3. Do not allow your customer to find out about a price increase from your invoice. Notification of a price change must come from the account executive or a person of high position within the company. This information should only appear on an invoice after every account involved has been personally notified. Plan to allow enough time for at least one invoice to contain a note of the pending increase in price.
4. Make sure that each customer service representative and anyone else who comes in contact with the customer is fully aware of when the price increase will be communicated. Don't allow the customer to hear conflicting information from different departments. Everyone in customer service needs to be fully aware of the price increase, the reasoning behind it, and the logistics for implementation. They should also be provided with a FAQ guide to ensure that when customers do ask them about elements of the pricing increase, they are able to share accurate information.
5. Believe in the price increase. In order to be paid what you are worth, you must charge what you are worth. Although this is not something that can be explicitly communicated to the customer, this general sense is what sets the best practice companies and high-performing sales professionals above the rest.
6. Instill an open-phone/open-door policy. Whenever a price increase occurs, senior executives must be willing to answer phone calls from customers or to make phone calls to key accounts. Nothing sends a stronger signal to a sales organization than seeing its senior executives on the front-line dealing with a price increase.
7. Monitor the sales patterns of your individual customers before and after the price increase so you can quickly catch any changes that may occur as a result.
During the 1970's and 1980's, price increases were common and expected. In the past 10 years, however, we've grown used to lower inflation and the overwhelming impact of Wal-Mart's philosophy on pricing. Today, price increases are again growing more common and acceptable. But they must be carefully considered and not seen as a way to merely increase profits. We can't avoid dealing with price increases; they are an inevitable part of business. Instead, we should use them strategically to increase our selling potential.
Mark Hunter, "The Sales Hunter", helps companies identify better prospects, close more sales, and profitably build more long-term customer relationships. To receive his free weekly Sales Hunting Tip email or to find out more information, visit www.TheSalesHunter.com.