7 questions about pricing strategy with Casey Brown
The rising cost of everything is circular. Small and midsize businesses are impacted by inflationary pressures and, in turn, are also contributing to this as 67% of CEOs report plans to raise prices in the next 12 months according to our most recent Vistage CEO Confidence Index survey.
To help CEOs tackle this challenge we invited Casey Brown, popular Vistage speaker and CEO of Boost Profits, to share her perspectives on strategic pricing during the current economic environment. Highlights of her recommendations from this webinar include:
- Segment price increases: The riches are in the niches. Concentrate on the core and avoid a one-size-fits-all price increase.
- Create messaging for now: Align messages to customers’ challenges and behaviors.
- Support and arm the team: Enable your customer-facing team to fix problems with service not price.
- Develop strong sales leadership: Increased coaching and rigorous pre-call planning are critical in today’s economic environment.
Casey took some time to answer the following questions that came from our audience during this webinar:
1. How do you handle customers — automotive is a good example — who can only pass price increases on to their customers 1 time per year?
I’d like to interrogate the premise. There are plenty of standard operating procedures around pricing and price increases that have gone out the window with 40-year-high inflation and crazy supply chain interruptions.
Yes, the automotive market has created an expectation of their vendors, and vendors have fallen in line, largely because they feel like they “have to” because it’s automotive.
However, many companies selling to very large, very powerful organizations (including in automotive) have made unprecedented price increases successfully in both timing (off-cycle, more frequent) and magnitude (much, much higher than typical and even above contract-mandated maximums).
Customers, especially those with well-resourced, well-prepared procurement teams, will object, refuse, and rebut. And depending on the power you have with them, you can still pass along increases citing the current environment as the reason for the unplanned but unavoidable price action that is necessary to continue to deliver products and services.
2. If we raised prices too much back in May and have seen a significant volume decline in the past 3 months, should we lower prices or wait for the inflation to catch up?
There are a few considerations to this question. Can you afford to lower prices? If the products, services, or customers where volume loss has occurred are not profitable (or profitable enough) under a rolled-back lower price, then a roll-back doesn’t make sense. (Presumably, the reason for the price increase was higher costs which made the increase necessary and appropriate. As such, a roll-back may not be practically possible.)
This often results in a hard internal conversation about where we can realistically win in the market:
- What should we offer?
- What value does it deliver to customers?
- Has our value and price become disconnected?
- Does it point to a need for innovation and/or product and service improvement?
- Where has the volume loss occurred?
- Is it across the board or specific to a set of customers/products/services?
The more granular we can pinpoint what is happening, the more we can take any price actions and discounts, if necessary, on the fewest customers and products possible.
How overpriced do you believe you are? If you are significantly overpriced relative to comparable competitive solutions, “waiting for inflation to catch up” will result in a long period of reduced sales. In that case, I think a carefully-worded “mea culpa” with a price roll-back would be appropriate.
3. What are the pros/cons of having a publicly available price list, vs an “internal only” price list that is used by sales during the quoting process?
Your clients are right. That transparency is terribly damaging to their pricing power. There are no obvious pros to published price lists for nearly any business. The cons are many:
- It makes it complicated to charge different customers differently for the same products and services. (Doing this is legal, moral, and appropriate under many circumstances, but a published list creates challenges for pricing relative to value and price sensitivity.)
- It can prevent sales when someone sees a price that they perceive as too high BEFORE there has been enough opportunity to connect the customer to the value.
- It creates challenges when changing prices if customers and prospects have access to outdated lists that they can use against you.
4. What are your thoughts, especially for smaller companies in large markets, regarding making price increases/adjustment announcements?
Generally, I don’t recommend this. All that communication and transparency is increasing your customers’ price sensitivity. Communicate only what you must, and no more. Communicate pricing changes as little as necessary and in as low-intrusive a format as possible. Find more detailed considerations for your communication strategy in this blog.
5. Even though my competitors often charge more, how can I become less afraid of pushing my prices up too much and scaring the consumer?
Your narrative has essentially admitted that this obstacle is in your head (“head trash”) and not in the market. You know that has not been enough for you to overcome it. I believe that you have some underlying hidden obstacles to your success related to fears, self-limited beliefs, etc. I recommend two resources to address this mindset.
Sales Mindset Modifier
Pricing Essentials with Mindset
6. How do you stay ahead of inflation when you honor orders in your backlog at old prices?
The math is simple. Profits are revenue less cost. There is no way to stay ahead of inflation if costs are rising and you aren’t passing them along.
Of course, if you can get your suppliers to work with you to manage profits on your backlog, that’s terrific. But I would ask you to consider something that might feel unthinkable: raise the prices on your backlog.
Many, many companies are doing this. Proper messaging is essential to explain this regrettable but unavoidable action due to the extremely challenging inflationary environment.
This can be done in the current environment without destroying or even damaging customer relationships if done and messaged appropriately.
7. We have been buying “heavy” during the supply chain disruption and have been able to capitalize on the stock gains because of inflation. Do we still keep buying heavy or does the coming recession (or slowdown) mean we should pull back?
The answer is critically dependent on your industry and your projections around volume as the recession comes. I believe that the amount of risk you should take as recession comes is likely a bit less, but how heavy to buy and whether and how much to play the arbitrage game is less of a pricing question and more of a business strategy that needs to be weighed with risk.
About Casey Brown:
As President of Boost Profits, Casey Brown leads a group of consultants who help companies sell more at higher prices to increase profit. She is a highly sought-after speaker on the topic of commanding excellent pricing for the value provided.
Her 2015 TedX talk has accumulated over 4 million views to date, and the Boost Profits blog — of which she is a co-author — has been named a Top 50 Blog.
Casey’s unique background in engineering, Six Sigma and pricing strategy for multiple Fortune 500 companies provides a rich backdrop of real-world application which has helped establish her as an expert in helping clients discover their true pricing power and watch their profits rise as a result.
Managing rising costs through strategic pricing
Category: Product & Pricing
Tags: price hikes, Pricing, pricing strategies