Price increases – it’s all in the approach

  • I received a letter today from a supplier advising me all their prices will increase by 5% at the start of their new financial year. The managing director – who I’ve never met – tells me they’ve been forced to pass on cost increases but I’ll be pleased to know it’s their first increase in three years.

    From a customer’s point of view, this approach is wrong on so many levels – but it’s helped me think through my own company’s approach to pricing.

    In one action, my supplier has demonstrated:

    -       Their financial year is a significant trigger; my company’s budgeting cycle appears irrelevant to them.

    -       All their customers are treated the same; we cop the same increase, regardless of our volume of business. And we get the same carefully worded letter.

    -       They prefer to convey this sort of news in an envelope, and not through the person I deal with on a daily basis – my sales rep. If they were reducing my rates, I’m willing to bet the first person to deliver this good news would be my rep.

    I’m also dismayed that this company, like so many others, thinks the customer will give them credit for holding their prices for so long.

    That might be okay if I could compare today’s rates and see they’ve significantly reduced them in real terms over the past few years – but instead, I see a supplier now trying to play catch up, and at my expense. They might have planned for a decent increase in their new budget; I didn’t.

    Managing price changes can be a nightmare for many managers – and very rewarding for those who see them as a key element in their sales strategies.

    I’ve worked with many shrewd and successful managers and accountants who have seen price increases as an opportunity to grow business. The common factors in their thinking has been:

    -       To constantly review pricing, and look for opportunities to increase them, rather than wait for them to fall out of next year’s budgets or at the direction of a bean counter.

    -       To review pricing as it affects individual customers, and categories of customer. They don’t  inflict the same products and levels on service on every customer, regardless of need, so why treat pricing any differently?

    -       They look to avoid sudden and large leaps in price because of their own failure to properly manage costs. One wise accountant friend calls this the ‘loaf of bread theory’. He points out that bakers are adept at raising the cost of a loaf of bread by such small amounts, we rarely notice the difference for an item we purchase daily.

    -       They coach and encourage their sales staff to talk pricing with customers. It becomes as much a part of their dialogue with customers as volume, planning future business and how they’ll be serviced.

    Most of all, they think about pricing, they talk about pricing and they take a strategic approach to it.

    Josh Easby- A regular contributor to


1 comment
  • Jack Walker
    Jack Walker I think most business people understand that the cost of business inceases all the time and that includes radio stations. But, as a former buyer, I resented facing an annual increase. The solution is to raise your spot rate a little every other year and raise all other rates the other years. A yield management system also makes sense. Business people understand supply and demand.
    March 1, 2013