How to Effectively Sell and Negotiate Price Increases
Effectively selling and negotiating a necessary price increase can be difficult in almost any situation.
Trying to sell, justify, and negotiate price increases to customers/accounts, in any channel, in a difficult economy and in complex market conditions can present some serious challenges for poorly trained and ill-equipped sales and marketing personnel. Yet, as challenging as the task is, selling and trying to negotiate price increases is often an essential requirement in order to maintain your company’s overall profitability.
Your customers/accounts will most likely try to use negotiating skills to mitigate, manage, or refuse a proposed price increase. Therefore, vendors will need to contemplate the following when preparing and planning to enter into price increase discussions with customers
- Is the customer’s unwillingness to consider and/or accept a price increase a belief, strategic business practice, or a company policy.
- Or, do customers/accounts utilize a conscious negotiating process and/or aggressive tactics to see if the vendor will back down quickly from a proposed price increase request? In other words, when faced with negotiating pressure, will the vendor make price or other monetary concessions that will help offset the proposed price increase?
The challenge associated with selling and negotiating a price increase in difficult market conditions usually stems from the fact that sales and marketing personnel and the customer view the situation from different perspectives. The customer/account will invariably utilize strong objections, issue threats (coercion power), and use proven negotiating gambits to fend off the salesperson’s efforts to sell and justify a price increase. Also, it is likely that the customer will use the Higher Authority gambit (and other recognizable negotiating gambits) in order to carefully manage and control the overall decision-making and approval/rejection process.
I am sure that over the course of your business career, you or members of your sales organization have heard the following statement from a customer:
“You know the economic situation as well as I do. This is not the time to try to pass on any kind of price increase. The market is soft and increasing prices will only hurt your company’s sales with us. There are several competitors who would be very interested in capturing your market share and growing their business with us. Let’s just wait six months and revisit the situation when the economy improves. If you insist on implementing a price increase, then you are going to force us to reassess the category and your current position with our company. A price increase in this situation seems like a very risky move on your part.”
Perhaps some customers are more direct with their response to a proposed price increase:
“We do not accept price increases from vendors, no matter what the circumstances are.”
All members of the vendor’s organization need to understand that almost all price increase requests need to be properly sold and negotiated with each unique customer/account.
Seven Tips to Enhance Your Success When Selling and Negotiating Price Increases
- The Importance of Having the Proper Attitude and Necessary Self-Confidence to Negotiate Price Increases: The customer’s response to any proposed price increase is rarely positive. In addition, there are the usual concerns that a competitor’s price may undercut yours or that the customer may choose to go down a different path instead of buying from your company. As big as these issues are, they pale in comparison to the number one roadblock to achieving your maximum plausible position (MPP) – the confidence of the salesperson. The main reason why companies do not capitalize on their improving business results is because most salespeople do not have the confidence to ask for and achieve their maximum plausible position when it comes to a proposed price increase. If salespeople are confident in what they are selling and in knowing how the customer will benefit from their products/services, then they will be more confident in asking for and getting their desired outcome. If the vendor organization’s sales and marketing personnel do not have a positive and optimistic attitude or the required level of self-confidence to persuasively sell and negotiate a necessary price increase, then the process will likely be more challenging – and achieving success will be unlikely. Effective negotiating is a learned skill.
- The Use of Situation Power: There are eight different forms of personal power that can impact and influence negotiated outcomes. Situation power refers to the power that a party/person has in a particular situation. If you and your company operate in a very competitive market/category that has many non-differentiated vendors and product lines, then it may not always be possible to increase your prices (especially if you’re selling a commodity product) – in this case, the customer has situation power over the vendor. Depending on the vendor’s situation power in the negotiation, it is likely that the vendor’s maximum plausible position may be higher than the salesperson and the company believe.
- Learn to Ask Effective Blueprinting Questions to Negotiate Price Increases: It is imperative that sales and marketing personnel be equipped with and then be prepared to ask the right questions of the relevant members of the customer’s buying centre, which is defined as “the composite group of individuals who make or influence decisions.” The following are five examples of effective blueprinting questions that can be used during a price increase conversation:
- “Under what circumstances have you and your company ever accepted a full price increase from a vendor?”
- “How frequently do you allow vendors to present price increases to your company?”
- “What is your company’s policy regarding getting price increases approved?”
- “What decision-making criteria do you and your company utilize that would result in getting our company’s price increase approved?
- “What process does your company utilize to approve price increases from vendors?”
Top-performing salespeople learn how ask the right questions that allow their customers to elaborate on their needs, pain points, and dominant buying motive. Top performers also demonstrate good listening skills by asking the appropriate follow-up questions that allow them to press for specifics and/or seek clarification.
- The Importance of Using the Proper Negotiating Methodology, Strategies, and Tactics – The Higher Authority Gambit and Corresponding Countergambits: An important part of the negotiating process is to provide yourself and/or your company with several potential layers of protection. Therefore, I recommend that any salesperson designated to communicate and/or present the proposed price increase should not have the final authority to make any price-based, monetary, or non-monetary concessions. There are many reasons for this recommendation. To fully understand the power of the Higher Authority gambit and the corresponding countergambits (tactics to use when a customer uses this particular gambit on you in any negotiation), it will require an investment in negotiating skills training and development.
- The Impact That Proper Messaging Can Have on Negotiating Price Increases: To improve the chances of selling and negotiating a potential price increase, it is critical that you and your company develop the most effective and persuasive messaging strategies that can help to sell-in the price increase and communicate value. The following are some recommendations:
- Use a well-written, edited, and expertly vetted business letter or presentation format for communicating the proposed price increase. Do not use generic and poorly written “Dear Valued Customer” letters to announce or propose a price increase.
- Be clear and detailed with your written communication.
- Be proactive, realistic, and truthful regarding your proposed price increase. Provide plenty of advance notice concerning the timing for any proposed price increase.
- Provide an explanation and/or rationale for the proposed price increase. Include any relevant “evidence” as an exhibit item in your letter or presentation. Exhibit items may include correspondence such as letters from suppliers showing raw material price increases; labour cost increases; government tax increases; currency fluctuations; and utility price increases, etc.
- Calculate and communicate the gross profit dollars that the customer has generated from doing business with your company over the past year. Include all value-based monetary and non-monetary support/investments that your company has provided to the customer. In your aggregate financial calculations, include investments such as co-op marketing funds; O&A marketing funds; merchandising and markdown allowances; permanent and secondary displays; favourable product turn ratios; fixtures; and the cost for any extended payment terms/invoice dating that extend past your standard payment terms. This strategy is called the Positioning for Easy Acceptance gambit. Depending on your company’s situation power, if your products are generating a good ROI and gross profits for the customer, it will be more difficult for the customer to turn down the price increase. Know your “trade math” inside and out, and avoid any and all “cost-based” pricing discussions with customers.
- How Much of a Price Increase to Ask For and How to Position the Price Increase: Always ask for more than you expect to get when you want to negotiate a price increase. The proposed price increase needs to be based on a maximum plausible position (MPP). By asking for more than you expect to get in the initial stages of the negotiation, you can “bracket” your objective and leave room to make a concession to the other side (the customer), thereby creating the potential for a Win-Win outcome through compromise. Example: Initially, propose a price increase of 3.35% and then use the process to negotiate/agree upon a price increase of 2.73%. Always use odd numbers or odd percentages when proposing price increases. Never present price increases using even numbers or even percentages. Do not present price increases in increments such as 2%, 4%, or 6%.
- Invest Time and Money for Proper Preparation, Negotiating Skills Training, and Practicing: It is essential for even the most experienced salespeople to prepare effective oral and written scripts/phrases, statements, and blueprinting questions well in advance of any meeting to discuss a proposed price increase. Also, sales and marketing personnel must consistently practice and role-play using the designated scripts/phrases in order to be fully prepared to effectively pre-empt potential objections from customers. If the vendor organization’s sales and marketing personnel have not received the necessary negotiating skills training and/or have not developed effective, easy-to-use turnkey tools for their negotiating arsenal, then your company will need to invest in acquiring the necessary skills and tools.
Good luck in all your negotiations and remember: Everything is negotiable … except not negotiating.
For more information about our cost-effective and tailored in-house seminars and learning workshops for your organization or association, please visit our website at negotiatingcoach.com or to book an impactful and engaging presentation, seminar, or learning workshop, contact me directly at email@example.com
Michael E. Sloopka, Negotiating Coach®, is President and Founder of Selling Solutions Inc. and negotiatingcoach.com. Michael is an internationally recognized negotiating expert, speaker, author, consultant, and coach. He conducts tailored, engaging, and impactful presentations, seminars, and learning workshops on various negotiating and sales topics for organizations and associations around the globe. Michael has written articles for – or has contributed to articles for Forbes, Amex Open Forum for Business, Fortune, Selling Power, and Profit magazines.
negotiatingcoach.com is an international negotiation training, consulting, and coaching firm that specializes in teaching negotiating skills and the decision-making dynamics that affect negotiation outcomes. We are a proven solution provider and the benchmark for providing high return-on-investment negotiation solutions, ranging from our negotiation training programs to complex organization-wide negotiation initiatives. Offering more than 25 years of successful negotiating experience and expertise in sales, marketing, purchasing, distribution, and consulting – from small business to multinational corporations, from personal transactions to multimillion-dollar extended supply agreements and contracts – negotiatingcoach.com has added hundreds of millions of dollars to its clients’ collective bottom line through effective training, consulting, coaching, and negotiation facilitation.