Do You Review Prices?

Karl is a Sales Professional with a leading supplier of raw materials to manufacturers. For 15 years, Karl has been using Sales 101 techniques to build strong relationships with clients

He is now in a position to implement price increases for the first time in seven years. Karl doesn’t know what to do.

Like many Sales Professionals in the volatile economic conditions of the 21st century, Karl has never had to communicate price increases to his clients. Lacking experience in positioning a price increase, he is afraid of weakening the strong relationships that he has developed or worse, losing clients by delivering this difficult message. However, for Karl, as for many Sales Professionals, economic growth is making price increases inevitable.

Fortunately, it is possible to maintain strong client relationships in this situation by following five techniques borrowed from Sales 101 for leading a consultative conversation about price increases:

1) Know the reason for the price increase. There are a number of reasons for increasing prices. For example:

• Your costs (materials, labor, facilities, etc.) have increased.
• The original pricing that you established with the client no longer reflects current conditions, and your margins are too low.
• The market has shifted upward since you last quoted a price for the client.
• Be honest with your client about your company’s reason(s) for the increase, which will help create transparency and build trust.

2) Anticipate client resistance. Think through the implications of the price increase for your client, and be prepared to acknowledge these implications. Anticipate in advance how the client will react to the increase so that you are best prepared to address his/her objections and concerns.

3) Neutrally position the price increase. As briefly as possible, lay out for the client why you are implementing a price increase, how much the increase will be, and when it takes effect. Do not belabor the point with excessive rationale. Remain neutral and confident. Avoid using phrases like, I know this increase is hard on you … or, I know this increase seems high … which could create a perception that you don’t support your company’s decision.

4) Remain silent after positioning the increase. Anything you say after that point will open up room for negotiation in the client’s mind. Do not ask a checking question. If the client raises objections or concerns, use the Objection Resolution Model to address them, but avoid creating the impression that the increase is negotiable.

5) Strengthen the relationship. End on a positive note. Thank the client for understanding and for his/her continued business. Express your enthusiasm for continuing to work together.
What sales techniques have you used to position price increases? Share them with us in the comments below!

Price, Price, Price

7 reasons why your price increases fail (and your bottom line suffers)

“When it comes to the prices we pay, we study them, we map them, we work on them. But with the prices we charge, we are too sloppy!”

Pricing is the most important driver of profit, but unfortunately managers and entrepreneurs seem to neglect the issue. In one of our global pricing studies we asked over 3,900 high-level decision makers from all major service and manufacturing industries around the world how they set their prices. The main findings in a nutshell: many of them don’t get the money for the value they deliver. And weak pricing cuts their profits by 25 percent.

Untapped pricing power = lost profits
Every company has the ability to achieve high pricing power. If a company can offer its customers real value and communicate that through a top brand, this will translate into money.
Asked what or who is responsible for their weak pricing, managers often blame “tough competition”. Another favorite is to blame customers, and stating that the customers are very consolidated and have tremendous negotiation power is very common. These are all excuses that avoid getting to the bottom of the problem. Poor pricing performance is not a question of fate; it is largely up to each company to either become a pricing champion or go the road of devastating price wars.
There are no structural reasons for pricing weakness, but three fundamental causes that make the difference:

• insufficient monitoring
• a lack of pricing know-how
• and poor strategies

A few simple steps can help tremendously when it comes to pricing.

1. By focusing on market share, you start price wars

“If you ask your people to strive for volume, you should not be too surprised when you end up in a price war.”
The effect of price wars on profits is disastrous for all sides. There are no winners— except the customer. That’s why companies should avoid price wars if at all possible and it’s up to their managers and owners to encourage their employees to strive for profit, not for market share.

2. You underestimate inflation threat

Neglecting prices and being weak at pricing will also prove devastating with inflation around the corner. What will happen if you are weak at pricing, you will typically achieve only half of your targeted price increases. That means you only get 53 percent in the end, although you wanted 100 percent of your targeted price.

3. You give discounts and goodies in return for price increases

Although price increases are essential for survival in inflation periods, managers and entrepreneurs are mostly insecure about how to plan and implement price increases. There are a few steps though that can help them.

First and foremost, you need a consistent and systematic process for pricing. For every single activity companies have detailed processes with descriptions and explanations, but when it comes to price increases many don’t exactly know what to do. Such a process includes starting with the price increase targets, selecting the right instruments, preparing the price increase and, finally, executing it.

Price increases are often accompanied by “goodies”, discounts, give-aways, customer-friendly payment terms, etc. Many fail to factor in the effect of these customer-friendly measures.
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4. You don’t fight hard enough for the necessary price increases

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5. You don’t think creatively enough about prices

Also, it helps to think creatively about prices. Besides a classical list price increase, there are tens or perhaps even hundreds of price instruments available. The key is to go through the list of possible instruments, analyze which one fits your specific situation the best and then make a conscious decision as to which instruments to take – be it discounts, shorter payment terms, smaller package sizes and so on.
Take this example: the price of a one-liter bottle is known by most consumers. Almost nobody overestimates the price of a one liter bottle of water. But customers have a much lower price awareness of the small pack. More importantly, 50 percentoverestimate the price.

If you want to increase the price of your water bottles, the solution seems clear: don’t touch the price of the one liter pack, but apply a disproportionally high increase for the small pack. This is a general message that applies to B2B as well as B2C companies:set different price increases by product/customer groups based on the level of price elasticity.

6. You weren’t the first to set an ‘anchor’ price

Companies often ask us whether they should be the first ones to make a price move. If a company is or wants to be the leader of an industry, then it must make the first move and set the anchor price.

Many but still too few companies are doing that. When you knock at your client’s door and ask for higher prices, the clients are already informed, they already know about the price change, and the bad news has already been communicated.

7. You don’t reward your sales team right

Implementing the new price is the job of the sales department, but very often sales is struggling with this task. Either they only manage to implement a small part of the planned price increase or they give away goodies and discounts in exchange for the price increase; the bottom line being that nothing is achieved.

Do You Really Need To Teach The Old Dog New Tricks ?

Every once in a while I run across someone who doesn't want to change. What do I do to convince them that the change is good for them?

Nothing!

Have you ever tried to change the behavior of an adult who had absolutely no interest in changing? How much luck did you have with your attempts at this? Have you ever tried to change the behavior of a spouse, partner or parent who had no interest in changing? How did that work out for you?

My guess is that if you have ever tried to change someone else's behaviour, and that person did not want to change, you have been consistently unsuccessful in changing their behaviour. You may have even alienated the person you were trying to enlighten.

If they don't care, don't waste your time.

Research on coaching is clear and consistent. Coaching is most successful when applied to people who want to improve. This is true whether you are acting as a coach, a manager, a family member, or a friend.

Your time is very limited. The time you waste trying to change people who do not care is time stolen from people who do want to change.

As an example, back in Valley Station, Kentucky, my mother was an outstanding first grade school teacher. In Mom's mind, I was always in the first grade, my Dad was in the first grade, and all of our relatives were in the first grade.

She was always correcting everybody.

Dad's name was Bill. Mom was always scolding "Bill! Bill!" when he did something wrong. We bought a talking bird. In a remarkably short period of time the bird started screeching "Bill! Bill!" Now Dad was being corrected by a bird.

Years passed. When Mom corrected his faulty grammar for the thousandth time, Dad sighed, "Honey, I am 70 years old. Let it go."

If you are still trying to change people who have no interest in changing, take Dad's advice. Let it go.