8 tips on how to inform customers of a price increase
Data from Vistage research confirms that tariffs are taking a toll on many vertical markets like wholesale trade, manufacturing and construction. Strategically, CEOs need to reconsider their supply chain and/or the reshoring of production. Tactically, tariffs are forcing CEOs to increase prices now or absorb the margin hit.
Casey Brown, a Vistage expert speaker on pricing and president of Boost, has seen this firsthand: Tariffs are creating enormous cost pressures for many Vistage member companies. But many CEOs do not know how to inform customers of a price increase.
When it comes to communicating price increases to your customers, many CEOs and sales teams “may lack confidence to take higher price to customers, even though their suppliers are shoving higher prices at them,” says Brown. “I’m fascinated that companies don’t feel powerful when they are in the customer seat, but they see their own customers as all-powerful. This speaks to what I find over and over again: The biggest obstacle to pricing execution isn’t the competition, the customers, knowledge about cost structure or other analytical expertise, or even better pricing strategy. It’s confidence.”
Brown explains 8 ways that leaders can develop the confidence to raise their prices — and the skill to push them through — before tariffs take their toll:
- Remember this truth: No one wants to pay more for anything, ever. It’s a fact of human nature that people don’t want to pay more for anything, says Brown. “It doesn’t matter what kind of business you’re in, whether you’re selling in a B2C or B2C or B2G environment. All of your customers want to hold on to their resources. They use a series of buying strategies and negotiation tactics to underpay for your products and services. When you confuse these tactics with market intel, you underprice. Your customers provide you with information polluted with their own self-interest, and when you believe it, it costs you money.”
- Expect pushback, no matter what. Regardless of whether you have a personal relationship with your customers, expect them to push back on a price increase. “They’re always going to grumble,” Brown says. “They’re always going to complain. Just because they say they’ll leave over a price increase doesn’t mean they will leave. They’re always going to bring to bear all the leverage that they have in order to pay less for stuff. But, if we let that stop us from pushing through our price increases that are necessary for our financial survival, then we do that at our peril.” If your customers complain about your announcing a price increase (and they will), recognize that it does not reflect the value of your products or services — or the customer’s actual willingness to pay. “It is a natural tension of the sales process,” says Brown.
- Focus on the formula of messaging plus preparation. Don’t go into a price conversation before you’ve sorted out answers to key questions, such as: What is your messaging around tariffs? What will your customers say? What objections will you hear in response to a price increase? “It’s imperative that your messaging be crisp, and your people be prepared — like game theory,” says Brown. “Think through: What are all the things they could say to us? How can we get ready for that conversation?”
- Differentiate on value, not cost. Whenever possible, don’t just cite rising tariff costs when explaining price increase rationale to customers. Talk about the value that you deliver, the investments you’ve made, and how your company offers better products or services. Make a case for why you are worth more, irrespective of tariffs. Not only will this make your price increase more palatable, but it will offer some protection for the future. Brown explains: “If you say, ‘This is specifically and exclusively driven by tariffs,’ then the second the tariffs are removed, many customers will come back and say, ‘Hey, where’s my decrease?’”
- Prepare your sales team for possible objections. There are a finite number of ways that your customer will respond to the news of a price increase, says Brown. “Your customers aren’t going to respond with a million different price objections. There aren’t 500. There are six, eight or four,” she says. “And if you have 100 sales people, you don’t want them each making up their own independent answers to those objections. You don’t want 600 different answers. You want to control that message at the organization level.” Brown advises getting your best people to craft specific responses to a limited number of scenarios, and then training everyone on the sales team to use those responses consistently. “Let’s be ready so that our 100 guys on the street won’t stand there stumbling and struggling,” she says. “Because they will discount in the face of that. They will not be successful.”
- Know that if you don’t have excellence, you don’t have pricing power. “This is all predicated on the fact that you have a product or service of value,” says Brown. “If you’re selling something that isn’t competitive, or you don’t have a competitive advantage in the marketplace, you’re going to really struggle with this.” For example, if your company is struggling with serious quality control or services issues, your customers will “circle like sharks at the time of a price increase,” she says.
- However, you don’t need to be perfect to raise your prices. Operational perfection isn’t a prerequisite to a price increase strategy, says Brown. She offers this example: If you visit your favorite restaurant and they forget to put extra cheese on your pasta, it’s still your favorite restaurant. “Operational perfection does not exist,” she says. “Your competition isn’t perfect either. Don’t wait for perfection to be a price leader. Don’t abdicate the opportunity or responsibility for price leadership because you aren’t perfect.”
- Assess your pricing power. Pricing power comes from the degree to which your products and services are valuable and differentiated, and how much your customers need you. It directly impacts your ability to push through price increases. “The reality is, we often have a lot more pricing power than we think,” says Brown.