Price Increases Keys To Success
With the end of the recession, there will be upward pressure on raw material prices linked to increasing demand on supply capacity that has been constrained for the last year or so. The ability to pass on any impacts from increasing input costs, will be key to winning the battle for profitability in coming months. Given that a price increase is likely to be the most important performance improvement programme on companies’ agenda in 2010, it is vital that they are well planned and executed. The article attached takes this discussion further and highlight the keys to ensure your next price increase delivers its goals and sticks.
Published on: Mar 4, 2016
Transcripts - Price Increases Keys To Success
Price Increases – the keys to success
James Boon & Brian Sullivan, @ Neworld Ambition Ltd.
The current softening of prices due to the financial crisis and recession will end. Within 12-18 months
raw material prices will rise significantly on the back of increased demand and constrained supply.
Organisations that are able to raise their prices quickly and effectively in response, will steal the march
on the competition. Are you ready?
OECD is forecasting recovery and growth in 2010 in just
about all world regions; 1.9% in richer nations but
significantly higher in the BRIC nations, with China forecast
to grow by 10%. Demand for limited world resources will
increase, and once again put pressure on what were already
capacity constrained industries. It is only reasonable to
assume that inflation in raw material costs, with a knock on
impact to finished goods, will come back – some economists
suggest with more vigour than before.
Consequently Neworld predicts that 2010 will see price
increases being a prominent theme across industries. Organisations that lack the capabilities to
successfully implement timely price increases to recover inflation in their variable costs will be the
biggest losers. Failure to recognise and respond effectively will result in considerable damage to
operating margins (typically 40% for a 5% increase in variable costs), customer loyalty and volumes.
So what should organisations do to win?
In Neworld’s experience the organisations that are most effective in implementing price increases
exhibit a number of key behaviours:-
They forecast changes in cost, supply, demand and profitability at both
customer and product levels with a long term rolling horizon, gathering
their own intelligence rather than just relying on the press. These
organisations tend to understand the cost drivers of their products better;
continuously innovate to reduce costs and develop contracts with their
customers that better provide for price increases by avoiding emotional
conflicts and costly delays. In doing so these organisations buy themselves
the time to properly prepare and implement price changes that minimise
the impact on their margins, volumes and relationships with their
customers while protecting their competitive position.
Their Leadership consistently demonstrates Pricing willpower – senior
management have the resolve to implement the agreed upon actions, setting
and reinforcing the right examples to the front line team and not succumbing
to pressure. Expectations are clearly communicated and the outcomes from
these actions are tracked and reviewed. Exceptions to the change remain
exactly that, rather than becoming the norm.
Price increases are recognised and treated as strategic
programmes – singularly one of the most significant value-
adding improvements to existing operations. They plan and
effectively communicate price changes and demonstrate the
innovations made to minimise costs with key external
stakeholders, leveraging multiple communication channels and
investing time to brief and train their front line staff. The
organisations which are able to justify and articulate the reasons
for the price change to their customers and other key
stakeholders, avoid being seen as opportunists and windfall
The most effective organisations understand and continuously
review where their products and services sit in relation to
competitors’ products on the Price/Value axes, and use this
information to predict competitor and customer responses to the
move. Applying this information they are able to determine the
appropriate tradeoffs to make.
In summary the very best organisations at implementing price
changes therefore tend to be those that lead, or very closely follow
the leader, in pricing within their markets. Their superior visibility of
both macro and micro trends, decisive decision making, and efficient
execution capabilities enables them to capture increased costs from
their customers without ruining their relationships and triggering
undesirable and damaging market responses. In contrast are those
organisations which are constantly fire-fighting. Forced to take short
cuts they often apply crude price increases across their product
portfolios with little or no justification and understanding of the
likely outcomes. Lack of a defined framework to handle exceptions
undermines their pricing integrity and as a result price increases fail
to stick and customer relationships are at best strained.
About the authors
James Boon and Brian Sullivan are directors at Neworld. Between them they have over 30 years of
experience in working with blue chip organisations to develop their pricing capabilities and deliver
substantial margin improvements.
Neworld Ambition helps businesses in B2B markets to win the battle to sustain and improve the profits
they generate from their customers products and services.
To find out how Neworld can help your organisation call Brian Sullivan on +44 (0)791 221 9897, James
Boon on +44(0)786 7788036 or visit www.neworld.co.uk