“Selling” a price increase – Capability

Last week we looked at the two areas that can make it hard for sellers to “sell” price rises to their buyers, the first being Motivation (and I left you with a process you can use to help them move their beliefs about prices) and the second area being Capability. This week we’ll look at a process your sellers can follow which will remove the capability issue.

Capability? In our experience, most sellers don’t know how to “sell” a price rise and this lack of knowledge creates unnecessary reluctance to carry higher prices. Even if your sellers have developed their selling skills through attending training courses and reading books, it’s unlikely that they will have spent much time learning about handling price rises (prices yes, price rises, probably not).

First a health warning. You will probably need more than this process for handling Key Accounts, or for transactional buyers. It works best with buyers where a relationship is already in place.

Here is the process: Drivers followed by Mitigation followed by Rationale

The biggest reason that buyers do not like price increases is that they need to have a rationale for them. Firstly to justify it to their logical thinking or, more likely, to justify it to someone higher up the food chain. Yes, there is a cost increase that will impact on their business (along with the many others they are currently facing) though this can be rationalised once the increase has been presented within a rational frame. This model helps your sellers to give your buyers what they need, a rationalisation and a frame.

First some definitions…

Drivers – These are the causes of the price increase. Usually these will be around cost increases. The aim is to build agreement (a “yes” set) with the buyer, around the position that prices are going up. If your cost drivers do not match those of your buyers (they may not) find some examples that do. “Have you noticed the price of petrol? Every week it seems to costs more and more to fill my car up. Has this affected you too?”

Mitigation – What has your business done to spare your buyer the full impact of the drivers you have identified? Your buyer will expect you to be doing everything within your power to avoid increasing your cost to them and the more imaginative and exhaustive your business’ efforts, the more your buyer will want to be associated with it.

Rationale – Buyers understand that companies need to return a margin to investors. They may, however, get a warmer feeling if the rationale you suggest, supports their longer term needs. Investment in R&D or customer service levels may be better received than increasing shareholder dividends.

Preparation (as always) is the key to making this work in front of your buyers so we suggest that your sellers take time to prepare their own “positioning statement”.

Example – Here is an example of a positioning statement – Download a full copy with notes

Step One – Drivers

Statement: We have experienced significant increases in our raw material costs through the last three months. You have probably heard that ethylene oxide has increased by 47% and propylene oxidepolystyrene by 38%. Our factory operating costs are also affected by the increase in oil prices.

Closed Question (seeking agreement): Have you seen similar increases?

Step Two – Mitigation

Statement: At first, we thought that this would increase our pricing model by 19%, though now we’ve changed some of our manufacturing processes, and installed new operating software into our heating systems, we’ve been relieved to have held the increase to 14%. It’s been hard work!

Optional/If you can refer to previous increase: Our last increase was five years ago, so this increase approximates to less than three percent per year.

Question (seeking agreement): Have you had other increases recently?

Step Three – Rationale

Statement: We’ve worked hard to keep the increase to 14% which we calculate will be just enough to maintain our investment in R&D, and in the development of our 24hr service level. It’s a very tight sum though! (Or any other benefit that they value)

It is important that sellers vocalise each statement at a speed that allows buyers enough time to understand the logic behind the proposition. Sellers should allow enough personal space for buyers to let off steam if they choose, and when they want to speak (and they will) your sellers should allow them to speak without interruption.

This is a short snapshot of what, of course, can be a more complex model. You’ll recognise that businesses that can increase prices as needed, are significantly more secure than those that cannot. Worth spending time on? We hope so.