“It is not about what you ask, but what you keep”: A Guide to 2019 Price Increases
Planning and Communication are Key!
Why should you be concerned with your pricing decisions in 2019? A strong domestic economy, tariffs, inflation, and an uncertain global economy make for complex decision factors for executives, product managers, and even the salesforce. Here’s what’s on our minds:
FACT: Vendor costs are certainly going to increase.
DECISION POINT: How much do I pass through? What incremental margins can I get next year? Which product lines are most likely to absorb the increase?
Our approach is straightforward:
- Understand where your comparative strengths are—internally with your product lines and externally vs. your competitors.
- Craft a pricing strategy that aligns with your relative strengths and supports desires for 2019, while keeping expectations for 2020 and future years in mind.
- Craft a communication plan that projects market transparency, value delivered, brand presence, and customer intimacy.
Easy in concept. Harder to execute, right? Let’s break it down.
- Know where your comparative strengths are and how they impact your decision making. Knowing how your brand and products compare to your competitors is the foundation for creating a robust pricing strategy.
If you don’t have real market analysis to fall back on, plan for an external survey while you canvass your employees with a quantifiable internal approach. You will be surprised at the “Knowledge Market” that exists between your four walls. Get some real talk externally from customers you trust, and once again, create a quantifiable vehicle.Internally,use the data you have—even if it is not perfect—to dissect how your price increases have translated over the last few years. A decision on 70% of the information is better than no decision at all.
These simple approaches will get you started on what will become a tenable plan for 2019’s price changes. Once you’ve rationalized vendor cost changes and know your strengths, it’s time for the fun part!
- Craft a plan for list price changes in 2019 and modifications to your discount structures. Begin the process with a simple scoring schema for your products (individual and by a group) and customers (individual and by segment).
Grade highest those products and product groups that have the greatest market capabilities. Grade lower the products and groups that are mature or end-of-life. But watch out—don’t make the mistake of thinking you have a bunch of commodities. Make sure you consider the impact of your people, business model, and brand on your products’ pricing power.
Next, use a similar simple scoring schema for your customers. For instance, rank highest those individual customers and segments that shine in ease of doing business, growth, and relative profitability. Triage accordingly with other customers and segments. Then weight the categories for which is most important to meet your future desires. Don’t be afraid to iterate on this process until you feel comfortable with the results.
There you have it! A List Price Strategy based on product and a Net Price Strategy based on customers. Now that you have the structure defined, it’s time to communicate it.
- Create brand-powered communications supported by your data and qualitative findings.
First, create a “2019 Price Change” communication for your List Price increase. Make sure to take advantage of a Sales Weighted increase rather than a simple average.
Next, create a communication plan for each customer that will experience a material change to their discount structure. Use a customer scorecard to bring real data to these discussions. Changes will be much easier to pass through when you are open, honest, and clear about your process for making pricing decisions. Once again, be prepared to discuss the sales weighted vs. simple average implications.
Go into 2019 with confidence
Pricing shouldn’t be done by your gut or by the books. Careful evaluation and analysis will give you reliable information to make decisions and communicate those with confidence. Want to know more about approaching 2019 pricing decisions? We’re here to help.
