Do you have trouble “selling” a price increase to the trade? Are you afraid of losing share and volume if you increase your prices? If you raise your price, will the competition follow? Should I downsize a package instead of raising the price? Is there a ‘best time’ to announce a price increase? These are the type of questions confronting CPG manufacturers every day. With the run up in commodity costs, manufacturers the bottom line is being pinched by rising costs which hurts profitability and stock price. Nobody likes to raise price in a down economy but that is the harsh reality of rising commodity and gas prices.

Selling a price increase is a hard thing to do. Sales people are trained to sell products using features and benefits and can show profit potential. . Selling an increase can create a lot of anxiety for sales people since they are not used to doing it. Sales people are used to selling. A price increase does little to help a salesperson’s quota and takes time away from perceived more productive selling activities. Selling a price increase is an unfortunate dirty part of the job In the past there was the occasional price increase but in price increases have become a way of life. So providing sales people with the right training and toolset will make a price increase go a lot smoother.

While each and every situation will vary, there are some guiding principles to follow in raising price:

1. Evaluate your cost accounting methods to make sure you accurately reflect product costs in a volatile environment. Your records may not reflect true costs, a blended cost approach is most accurate.
2. Cost Justification: You must have some cost justification to raise price, an increase in manufacturing, commodity or transportation costs is just cause, setting accurate initial price is important as raising it later can be difficult
3. If you are the second or third tier brand in a category, initiating a price increase before the category leader does is a risky move, wait until the dominant manufacturer announces an increase before you do
4. Changing price frequently can be aggravating to the trade, be prepared to absorb small cost increases and then announce price increases when they are significant enough to justify the sales force time and retailers time, each time there is a price change requires significant paperwork and administrative
5. Provide ample lead time, changing a price the next day is unacceptable to the trade. 7-10 days lead time is being professional.
6. Floorstock protection or an allocation based on past purchases at the old price is often extended to the trade as a last buy option at the old price
7. A WILLINGNESS to lower wholesale prices should the manufacturing costs go down in the future
8. Be fair to the sales force, if there is a huge price increase and expected volume decline that should reflect in sales quotas and will make a bitter pill a little easier to swallow

Preparing your sales force is a must do. While most manufacturers are sensitive about sharing manufacturing costs with buyers, buyers follow the commodity market since they also buy private label categories and are intimately involved in the cost and manufacture of these goods. To level the playing field, sales people need a basic understanding of the commodity market and how that impacts product cost. A streamlined presentation should be prepared to show how ingredient costs trickle down to wholesale prices of goods. This will help sales people better articulate the rationale behind a price increase. Besides a refresher on ingredients and materials cost, there should be other behind the scenes tools homework done by the brand group to help sales people prepare for a price increase sales call.

1. Disarm the bad news by presenting the manufacturer as the victim not the perpetrator
2. Buyers know when commodity prices run up and there is some expectation that vendors will raise prices
3. A trend chart showing the rise of the material costs impacting the wholesale price. The chart may show ingredients, packaging, transportation costs
4. If the company has been absorbing cost increases without passing them along, share that with the trade, it will help reduce the sting somewhat
5. Elasticity modeling can show the impact of a price increase and can be useful in presentations if there is minimal impact on volume
6. A forecast of the trend direction and if downward sloping an indication of what the manufacturer will do with price (lower it is the best answer)
7. Sometimes a brand will take an increase to boost advertising and promotion, honesty with the trade is the best policy
8. An FAQ or scripted presentation is a good idea to ensure the price increase message is being disseminated clearly
9. Be cautious about leave behind materials with the trade as it may end up in the hands of competitors. A face to face discussion, price change form and a follow up e-mail follow up are best practices
10. Get the bad news out first then end the presentation with a last-buy option at the old price
11. When new prices hit the shelf, make sure the new price and profit margins are in-line with the amount of increase
12. Monitor the competitor’s price to make sure retailers are being fair, if there is an unfair price gap at retail confront the buyer or decision makers