Our expert view on the current situation
We are in a period of extreme cost increases – was it first seen as temporary, it now seems that we are not even halfway. On top of ongoing supply chain disruptions and raw material price increases, energy prices are now bringing costs to the next level. On the horizon is a potential next wave caused by wage increases. As price increases trickle down value chains, many end-customers and consumers are still protected, but will be facing steep price increases in coming months and years.
Following a long period of near-zero inflation rates, most companies lack muscle-memory to successfully increase prices – and they are already worn-out from implementing last year’s price increases. Inflation consumes cash, eats margins and lulls managers into a false sense of security as inflated revenues rise – action is needed.
Inflation development in the Netherlands
10 Key success factors
Battling the rise of inflation will separate the best of the rest, take into account 10 key success factors to protect margins and stay ahead.
1. Act now!
Inflation and volatility are expected to stay for coming years. Develop the muscle to manage uncertainty, forecast and plan ahead to minimize time leaps between rising costs and price increases.
2. Take control and lead
Undercapacity and strategic sourcing (dis)advantages imply choices have to be made about allocation and price; keeping all customers somewhat satisfied means no one is satisfied. This is a leadership task.
3. Set up a multi-disciplinary pricing squad team
Given current market dynamics, pricing needs a cross-functional approach where Product, Finance, Marketing, Sales, and Ops come together. Each function has a different angle on market dynamics and pricing implications.
4. Manage for profit
Even though it seems obvious to focus on profits, many organizations still steer based on volume and market share. With rising inflated revenues, profit protection is the only way to ensure a resilient and healthy business in times of high inflation.
5. It’s OK to talk costs with customers
Value-based pricing is the name of the game, but even the strongest brands need to talks costs if they want their customers to swallow yet another price increase. Make sure you know your cost (development) using fact-based insights.
6. Differentiate price increases
The ‘ease of the increase’ will differ per customer and product group. Differentiated price increase targets are key; across customers and across the product portfolio.
7. Let commercial necessity lead and legal contracting follow
Many find their commercial agreements are not geared for current circumstances. Opening up contracts is a necessity. Commercial should be leading in setting up new rules of the game, including raw material clauses and price indexation.
8. Prepare the story to trade
A blanket price increase with poorly prepared sales argumentation rarely ever achieves its goals. Especially in big deal negotiations with key accounts, the success of a deal is often determined during preparation and a solid value story.
9. Keep the spirit alive: incentivize and reward your sales force
Realizing yet another price increase is not easy, conversations are fiercer than ever. Train, prepare and back-up your sales force. Ensure best practices and high performers are celebrated, and reward performance.
10. Build a long-term capability
Many companies have to develop their price increase muscle after many years of low inflation. It is an opportunity to learn and future-proof sales teams. The coming period will separate the best from the rest.
We support our clients in weathering the storm through strategic commercial optimization programs or via squad team interventions to prepare price increase negotiations for key accounts. Contact us for more information.