- 9th January 2013
There comes a time in every product’s or solution’s lifecycle when a price increase must be executed. As we’ve seen in the last several years, prices of raw materials can rise as a result of natural events or increased demand. Costs can also rise due to inflation. Whatever the reason, the increase should be announced – but in a carefully planned manner. The following is a list of best practices:
- The first rule is to actually announce the price increase. Don’t try to slyly slip it past your customers hoping that they somehow won’t notice. Best-in-class businesses embrace decisions like these with confidence and communicate that feeling by issuing an announcement. At a minimum, this should include a letter to customers and the new price list as well as answers to questions that you would expect to be raised.
- While there’s no need to divulge a great deal of sensitive financial information, state the reason(s) for increasing the price. Have costs gone up because demand for the product has decreased? Has there been an increase in raw material pricing? Have manufacturing costs increased due to an environmental event? Whatever the reason, state it. Candor counts – and so does credibility.
- Communicate the core value proposition of the product/solution in the announcement and make sure customers remember the unique elements of the solution vs. the competition. For example, state some of the key benefits you’ve delivered through the years (be specific), and explain how the cost increase will support the company’s clear goal of solving even more customer problems in the years to come.
- Contact your largest customers and channel partners directly. While these may not be the most comfortable conversations or meetings (face-to-face is preferable), it’s in your best interest to take these opportunities to both explain and convey confidence in the necessity of the decision. If you can demonstrate that the price increase will actually improve service or add value to the relationship in some specific way, even better. Note: For channel partners, make sure they have the tools required to roll the price increase over to their customers.
- Provide clear timing for the price increase. Most channel and end-user contracts require some lead time for a price increase to become effective. Review the language within these contracts before announcing the increase to ensure that the announcement does not violate any pre-existing agreements.
- Embrace the opportunity to increase business. Use the price increase as an occasion to connect with customers, communicate your value and entice them to buy from you promptly before the price increase takes effect. To avoid a situation where demand outpaces supply, either limit quantities or provide extended delivery terms for products paid for in advance. Discuss the strategy with the finance department and be careful of revenue recognition rules on products that have not shipped.
- Conduct formal team training of impacted sales and order management personnel on the price increase. This provides an opportunity to ask questions and ensures that they will feel fully prepared to defend the rationale behind the decision. In addition, make sure that sales sees the communication package before it actually goes out to customers.
Finally, you might want to treat current customers differently than new customers in announcing a price increase. One suggestion: Lag the increase on current customers by a quarter or offer some type of discount. Executing all of these steps will go a long way toward engendering goodwill and trust from customers, and could actually increase business in the long run.
About the Author
Lisa Singer is Research Director, Product Marketing and Management, at SiriusDecisions. Lisa has more than 20 years of international experience with global marketing and product management, with an emphasis on strategic alliance and business development. Follow Lisa on Twitter @lisagsinger