After months of careful review and analysis, your distribution business has made the decision to go forward with a price increase. You’ve spent hours considering how this change will impact your customers, the mix of products you sell and your bottom line.
Once you’ve locked in the proposed changes, there is still a critical decision you need to make that will dramatically impact the success of your price change: How will you communicate the new direction to your sales team so they are best positioned to effectively make price changes stick?
The answer to that question will vary based on several factors. Consider your approach in communicating the price changes and what information you’ll share with your team.
Which Approach Should You Take When Communicating Price Changes?
When determining which approach to take in communicating price changes, consider the magnitude of the change, business risks and how your team might communicate with the customers. Here are three approaches that distributors most often employ.
It may sound strange or sneaky to consider not formally communicating a price change, but there are situations where it may be the best option.
Provide a general overview of the changes.
Communicate the scope and rationale, including an overall estimate on the level of increases (i.e. 2.5 percent) and summary of products that are impacted.
Provide formal communication and training
Train sales and customer service on response protocols, including customer level impact detail, FAQs, scripts for customer service and information that supports the need for the price changes to be shared with customers.
Ask These Questions When Determining an Approach
Consider the culture of your sales team and strength of customer relationships when determining which approach you’ll take. The best approach will depend on a number of factors including:
What is required of the sales team to make the price change a success?
Weigh the impact of notifying your sales reps versus the likelihood of any significant customer response or business risk. If there are apparent price changes that will require communication from the sales team to negotiate or update the customer’s system, properly prepare your team with the details and justification for the increase. Train them to resolve customer concerns or make appropriate concessions in return for sales growth or new business opportunities.
What is the timing of the increase?
Is it aligned with known manufacturer increases or a more unique “off-cycle” increase? Manufacturers very often announce (and usually pass on) price increases on an annual basis, most commonly early in the calendar year. Coordinating your price changes with those of manufacturers can provide “air cover” for placing additional premiums on some of those items or expanding increases to a broader set of products that aren’t likely visible to customers. This timing may allow for more limited and generic communication.
Will the price change be communicated to your customers?
Distributors typically carry hundreds or even thousands of lines of products and are constantly dealing with cost changes on those items throughout the year. It’s often not practical to formally announce every change. Depending on the scope and scale of the change, buyers have become accustomed to these price updates in many industries, so they may not require any support or communication. If you are going forward with a more significant or comprehensive set of changes, impacting highly visible/high-velocity items, then formal communication will likely be necessary.
Who is calling on the customers that are impacted?
Customers with no assigned reps (House Accounts) or those who are strictly web purchasers may require little to no communication around price changes. The same can be said in most cases where inside sales reps who manage very large portfolios of customers or companies utilize manufacturers’ reps. Those individuals may lack the specific knowledge of the account details or products to positively influence the outcome of a price change, unless that change is very large. On the other hand, large or specialized customers that are served by dedicated sales resources should be informed of price changes.
How Much Communication Is Necessary?
Each of the three common approaches for communicating the price increases with your team comes with its own steps to take thereafter. There are some specific actions to help improve the likelihood of success for a price initiative.
When You Decide to Provide Limited or General Communication:
If you decide not to communicate any changes to the sales team (Option 1), you’ll want to monitor sales trends and inbound calls with price questions or challenges to customer service. You’ll also want to stay close to the sales managers in case they are getting resistance from their reps or customers. When this approach is used for the right type of change, that pushback almost never materializes, and even when it does, it can usually be resolved quickly with minimal impact.
If you’re providing limited communication in a summary form (Option 2) in what is typically a more routine price change, you’ll want to create a formal letter stating the approximate impact of the change for the sales team, and likely send it to customers so they are aware. It’s not advisable to have salespeople create their own version of that communication to distribute to customers. It’s also wise to create a set of FAQs for both the sales and customer service teams to help them answer the most common questions. The last thing you want is for people to come up with their own responses.
By spelling it out for them, you equip your team to speak more confidently about why the increase was necessary. Many customers will take their cue from the response they get on those phone calls and if there is a lack of commitment or apparent confusion about a change, they will interpret that as opportunity to get it reversed. However, a well-spoken and confident response from a sales rep is typically the end of the conversation.
When You Decide to Provide Formal Communication:
If you’ve decided that a more comprehensive communication strategy to your sales team (Option 3) is the right response, then there a few things to consider that can significantly improve internal and customer acceptance.
Send a formal price increase letter to your customers with a high-level explanation about why the increase is necessary. This typically includes things like manufacturer cost increases, logistical or transportation costs, tariff hikes, material shortages and re-evaluation of internal inventory carrying costs.
Communicate directly with all sales and customer service reps, so they understand the rationale for the price change. Include the customer communication so they have a copy of what the customer received. Provide scripted responses and FAQs to prepare them for customer complaints or pushback.
Reinforce your company’s value proposition with the team. There’s a reason that most of your customers are buying from you, and in most cases that is not primarily the price. Be sure that salespeople understand the value they bring to the relationship and that they deserve to get paid for it. Things like value-added services, inventory breadth and availability, faster delivery and technical support are often more important to customers, although rarely mentioned in pricing conversations.
Provide a detailed summary to each sales rep of the impact for every one of their customers, including a total impact amount. In most cases, the dollars are relatively small and once you’ve quantified it, the conversation about the additional value you bring in the areas stated above puts the price change into a manageable perspective.
Train your team on how to negotiate. Over 70 percent of professional buyers are formally trained in negotiation, while only 15 percent of salespeople have received similar training. You need to make this a fair fight.
Inform Your Team in a Way that Fits Your Circumstances
As business or sales leaders, you know your salespeople, customers and industry as well as anyone. As such, you should decide the best approach to communicate (or not communicate) with your team based on that knowledge. In some cases, a simple, more generic summary of price changes may be acceptable but in other cases a more detailed “From – To” breakdown may be required to prepare your sales team to communicate and defend the changes.
No matter which path you choose, be sure to plan and execute the change intentionally and systematically. Do you need help to ensure that your pricing initiatives are successful? Explore our pricing and profitability resources for tips and ideas to get started.
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