I am "re-posting" this message due to popular demand. I have been asked the question about handling price increases regularly these last couple of weeks... so in response...
Price increases are a fact of life and a subject that “strikes fear” in the hearts of most sales people. True “Masters of Selling” understand the dynamics of price increases and how best to deal with them. No “silver bullets or magic answers here”, but instead solid strategies that will help you deal with the inevitable. These ideas will help increase your percentages of a positive outcome in customer transactions dealing with price increases.
First, you have to adjust your mind set or “attitude” in relation to price increases. Price increases are a fact of life and something every business has to deal with. They all get price increases and they all give price increases. Second, particularly in relation to “purchasing Departments” it is their job to keep you from getting any price increase. So you have to take any feedback you get from them like “no one else is raising prices” with a “grain of salt”. Some other thoughts to consider are:
1. When was your last price increase? Have you been absorbing them and not passing them on? What impact will the factors that caused your price increase have on your competitors (i.e., will their prices be going up as well)?
2. What impact does the price increase have on your customers business? In conjunction with a price increase are there other products or services that you can talk with them about that might save them money or lower their costs?
3. Should you “frame” your price increase as a percentage or in $’s. You may be increasing your customer’s price by 10%, but only increasing the total value of the product your part goes into by .1%. A three $dollar increase may sound less than a 12% increase. You’ll need to use your best judgment here.
4. When your customer “threatens” to leave you for the competition, have you done a good job of translating your value… is there a difference that justifies our price (there usually is) and have we done a good job of exploiting it?
Some general strategies in relation to price increases that will help you will include:
Forecasting- Start with being “up-front” with your prospect about pricing. If you are getting information that there will be a price increase coming, share it with your prospect early. This business/market intelligence should be some of the “extra value” that you provide to them that will help them plan for their business.
Most sales people wait to long and don’t give their customers enough fore-warning to plan for the increase. This early forecasting allows them to manage the expectations within their own companies and “soften the blow” internally.
Justifying- Trying to explain why you are raising prices is called “justifying” and it can often backfire. As soon as you start to justify and validate your position it has the tendency of making people feel like you really don’t care about them and are only interested in getting what you want. The answer you will often get after your explanation is “that’s your problem not mine”.
However, there are often extenuating circumstances that your prospect may need to know about that will help them to explain internally what is happening. Preface all of your justifications with the following conversation:
“Bob, I know price increases are never easy to accept and make your job of controlling costs difficult (softening statement shows empathy). Would industry information about what is driving the price increases be helpful to you in explaining what is going on to your management? (This by the way is there real “pain”, they are worried about how accepting a price increase will make them look to management).
Now, you are being asked to justify and that puts you in a position where you are fulfilling a request and not just trying to make your point.
Making the price increase an opportunity- This is a perfect time to offer to look at other products that you are not currently selling them to see if you can provide some savings that will offset the price increase you are asking for. It does not eliminate the price increase, and although we might have to be taking shorter margins on the new items, it is an increase in both revenues and profit. Sounds like a winner to me!
Your assistance here could come in the way of new items or more cost effective replacements to items they may already be buying from you. In essence the problem created by “the price increase” could actually turn into an opportunity to sell more! Now that’s “turning lemons into lemonade”!
Admin. vs. Purchasing (central supply)- Your admin.contacts will probably be a lot more understanding for your need to raise prices because they are faced with the same problem in their business. They might also be more open to have you go on a “hunting expedition” in order to identify some other ways you can save them money. Start talking about your price increase at higher levels and get passed down to central supply with an O.K. from above. They will approve your increase and work on other items.
There are many other issues that we could discuss here but in the interest of "brevity" we'll include those in other posts. Primarily, we'll also look at how building a case before the increase occurs would be a better way to handle it. You might want to access in my archives the post on "no problem".
Remember, how you think will drive your actions. If you think a price increase will be a problem it will be. If you think it can be an opportunity it will be… it is your choice on how you decide to think! Good luck and good selling!