MBA Associates Limited

Raise your Prices

Raise your Prices

We are trading in very unusual markets with a surge in RMI retail demand that seems to be proving robust in the face of oncoming economic storms whether that demand persists beyond the tapering of panic and an acceptance that we will have to live with Covid19 as we live with all other viral infections remains to be seen but in any event price rises are long overdue in a supply chain that doesn’t get the right reward for the work involved.

In markets where demand exceeds supply for whatever reason be it shortages of raw materials or manufacturing capacity it’s normal to see price rises to manage that demand and to maximise profitability and sustainability but the Window industry as we all know does not always behave logically! The very mention of a price rise be it from system suppliers to fabricators or from fabricators to installers raises howls of indignation, almost as if a personal insult has been offered and the supplier has a personal vendetta and intends to wreck their customer’s business. Some of this is posturing and sometimes ill-tempered ego we all know that but some is genuine distress from managers and small business owners who have never operated in a market where demand exceeds supply and who have no price strategy other than trying to always undercut the competition or grab a higher margin where they don’t get caught out by the customer. It’s always ironic to look at the RMI retail supply chain and reflect that the least price sensitive part of the market is the only part that puts money into the supply chain – the customer. If everyone put up prices by 10% tomorrow would sales volume drop? Almost certainly not, customers want great quality products and service, they want value for money and will pay the market price for that. Resistance to rising prices and margins is self-inflicted and has reached the self-destructive point after 25 or 30 years of falling prices only some of which is explainable by falling costs. Reducing costs is a limited way of grabbing back margin and it’s a finite ‘pot’ to call on, after all getting costs to zero is easy (shut the business) but getting them to a minimum is a an exercise in the classical Zeno’s paradox (you can never get to the destination).

Price rises we would argue are necessary and timely, there will never be a better opportunity and it’s bizarre to see huge efforts to increase capacity and delivery times stretching into months and months not to factor price into any ongoing strategy. Salespeople will always say that this will harm business often because many in that job are not ‘wired up’ to be salespeople and cannot add value to the process of getting the customer the right product at a fair price. Few salespeople have a view of price that is strategic (not all before social media erupts!) and that is even worse if their compensation is commission based or has skewed personal rewards based on volume for example.

So raise your prices whilst following the basic principles, doing so in a way that lets your customer raise their prices and add value to their business as well. Costs need to be recovered and margins should be sufficient to invest, grow (or sustain) the business and properly reward the people who work in it.

Be honest – tell your customers honestly that you are looking to recover costs and achieve acceptable margins whilst providing value for money. Explain that you have done all you can to mitigate cost increases and that you will continue to do this. Don’t be afraid to pick up the phone to your customers and have the hard conversation, similarly the sales team who have to deliver the news need to believe they are doing the right thing for the business and the customer (it won’t help the customer if you go bust or skimp on service and quality!). Don’t lecture the customer by email and don’t try and link your increase directly to your input costs unless you want the debate every time the € moves against the £, show the customer the need but unless you are truly doing cost plus pricing direct linking is fraught with pitfalls.

Be Upfront – No-one likes bad news but forewarned is forearmed and you can make sure that your customers have time to adjust their own businesses to take account of their new costs. Offering to take some of the pain yourself by delaying passing on costs is usually a gesture that is appreciated. Customers hate ‘surcharges’ it makes life uncertain and most hate that. Doing some sort of fixed deal (especially if you can back to back this with suppliers) is much better

Be Prepared To ‘Spook The Cattle’ - a price rise will get customers that would not usually do so looking around the market, make sure you are looking after them and that you are alert to changes in buying patterns whether you are selling retail or trade you’ll see what is going on.

Use The Opportunity To Maximise Customer Value – knowing the true value of a customer, not their turnover but their true margin contribution after the cost of servicing them is vital, if you have ‘tail’ customers who are not adding value for you then use the opportunity to make sure their prices reflect the cost of doing business with them, if they leave you haven’t lost much but it will free capacity to replace them with a new target customer or better service existing customers

Be strong But Be Fair – giving in to a customer that bullies your sales team may well put other customers at a competitive disadvantage as well as giving you a real morale problem in your own team. If a system company increases my prices but not another fabricator’s for example then that can be very damaging, especially in the next negotiation when you need to do this again (and you will!), don’t believe that word won’t get out. On the other hand, bargaining away an increase for an increase in volume from your customer may benefit you both, promises need to be delivered though, on both sides.

Make Sure The ‘Bank of Goodwill’ Is In credit - a price rise off the back of poor performance is obviously a bad move but adding some goodwill, some value that you can seek to give the customer along with the bad news is a positive move. Being able to launch a new initiative to help them sell or improved delivery times becoming easier to deal with or some other benefit goes a long way to making sure your ‘bank of goodwill’ does not become overdrawn.

Raise your Prices

© Chris Ball MBA Associates - November 2020

News Title: -    Raise your Prices
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