Are You Risking a Price Increase?
Just when everything was starting to look up as we come out of the global pandemic, economists and financial gurus are bracing the markets for economic challenges that lie ahead. By now you have read the news or experienced firsthand the impact of global commodity price increases, scarcity of resources, and the ongoing challenges with product delivery routes. While federal regulators take actions to mitigate the impacts, most everyone agrees inflation will be with us for the near future.
Everything from eggs and cheese to industrial materials have seen an increase on a global scale. Blame lies anywhere from rising fuels prices, scarcity of qualified labor, to global demand at a time when inventories are low.
As a profitable manufacturer, balancing these costs can be tight rope act. On one hand, you manage your supply chain through volume purchases, smarter freight strategies, and hard negotiations with suppliers. On the other hand, you manage discounting from customers and distributors as much as possible. You finally get to the point of a hard decision.
In order to maintain minimal acceptable margins and earning,
you must implement a price increase.
Nobody likes to talk about price increases. Not the sellers who impose them. Not the channel partners who pass them along. Not the customers who must accept and pay the higher price. Seems like it’s a no-win game. But it’s an essential part of a profitable business. Without price increases, people lose jobs, companies go under, and customers lose reliable resources that satisfy their needs. Relationships that were built over decades feel like they could crumble in a matter of days.
What’s the real risk?
There are many biases when it comes to communicating a price increase. There are emotions like fear of losing a channel partner or a customer. There’s the experience of high volume, expletive laced, arguments, debates and discussions. There’s often a counteroffer or negotiation which rarely leads to long term results.
Researchers have found 57% of buyers continue to buy from an underperforming supplier
even when equal alternatives are available.
Breaking up is hard to do. Why? Risk of change. Finding and qualifying replacement suppliers could take precious time. Some would say “it’s better with the devil you know” and have found “work arounds” to offset the deficiencies. There is an inherent risk with adoption of every new supplier.
Is it really likely that competitive alternatives will remain at a low price as well? After all, we’re talking about commodity prices increasing. The alternative manufactures who build similar products are likely to face the same increases in fuel, labor, and core materials. Is there truly a risk your channel partner or customer will find a lower price alternative in the long run?
And what if you do not raise your sales price? Sure, you could reduce operating costs, reduce inventory, and reduce staffing (for a while). But how long before this catches up in the level of customer service that customers expect or the quality you are known for?
The fact is price increase are coming. From everywhere.
So how do we minimize the impact to our channel partners?
The real competition is on your partner’s line card.
Let’s revisit the purpose of selling through channel partners. You chose to satisfy consumers of your products through distributors, manufacturer reps (IMR), and other types of resellers. These partners provide a high level of customer support, whole products elements complementing your products, with a high degree of market knowledge and reputation within their region. Channel partners provide all of this at a competitive cost compared to providing the same with a direct selling commercial strategy.
What do your partners receive in exchange? The highest return on investments in time, focus, and resources. They provide mindshare and focus on your products when recognizing you provide greatest alternative to earn a profit. Your products help them achieve their business objectives.
And then you raise prices and force them into a difficult position. What are their options?
- Pass the price increase on to their customers
- Absorb a portion of the price increase reducing their profits
- Turn their focus and investments to other products they represent that yield a higher return
Ouch. Let’s minimize the pain on this relationship.
We have identified a 6-step process for communicating and executing a price increase strategy.
The goal this strategy is to maintain the partner’s focus and investment in your products over the alternatives they represent. When executed successfully, you will reinforce the relationship with transparency and collaboration which setting you apart from alternative brands the partner represents.
Study → Prepare → Schedule → Deliver → Support → Measure
Because this is can become a contentious and emotional discussion, resolve old baggage in advance of the difficult news. If there are lingering issues, make sure these are resolved (or a plan in place) so the price increase does not become “one more reason” to distance themselves from your brand.
Nobody likes big surprises – at least negative surprises like price increases. Lay the groundwork weeks in advance of the formal announcements. Within your regular interactions, ask about price increases they have seen from other suppliers or competitors. Ask how their customers are handling price increases in the market. A quick “wow, gas has gotten expensive” comment can help partners become aware of the general environment of increasing commodity prices.
Many price increases we have heard lately are significant in nature and could have material impact on a channel partner’s profitability and strategic direction. This should not be taken lightly. As with any significant announcement, share the news face to face. While in person is best, virtual is the next alternative. Due to the significance, the announcement should also be communicated by a senior representative of your company to a similar leadership role within the partner’s business. This level of authority will help minimize emotional biases and keep the focus on facts and strategy.
Delivery of the message should include not only the details and data supporting the increase, but a plan to address objections most likely voiced by the channel partner. The most immediate opportunities should be reviewed with strategies to protect current proposals along with a strategy to communicate the trickledown effect to at-risk customers and opportunities currently in the sales funnel.
Additional value-added services and support to your partners can offset their efforts refocus investments and mindshare towards competing products they represent. Minimizing the burden the price increase causes their business can help build your brand value with the partner. This is good timing for additional technical or commercial training to help their sales execution, supporting their financial burden with consignment inventory or extended payment terms, or additional resources to help your partners weather the storm until customer sensitivity passes.
Now is not the time to “go dark” on a channel partner. They need you now more than ever. Keep in close contact to uncover signs of lost focus from your brand. As we have discussed in previous post, measure their performance on activities that generate future opportunities. Keep tabs on metrics and KPIs around customer education, lead generation, and opportunity creation. Metrics focused on early funnel stages will provide early indications on the focus and investment partners continue to provide your brand given the adverse situation.
Study → Prepare → Schedule → Deliver → Support → Measure
Price increases are never easy. Not for the vendor, partner, or customer. But with a little strategy and preparation, manufacturers can minimize the impact of losing a channel partner’s focus and investment in these difficult situations.
Take advantage of aligning your channel strategy with the best practices identified in the Channel ACE model. Take a quick 10-minute survey to assess the performance of your channel strategy against best practices found in top performing channel selling organizations.
Navigant Associates is a global training, consulting, and research firm specializing in channel sales strategies utilizing 3rd party sales and service partners. We help sales teams design and transform channel sales strategies resulting in higher earnings and customer value.
We help clients recognize performance gaps, leverage best-in-class practices and build strategies that improve partner relationships, execution skills, ultimately satisfy more customers.