By
Bob Thilmont
March 2006
Recently I was having coffee with a colleague. We were discussing an upcoming Pricing
Workshop I was planning to give. During
the course of our conversation my friend asked me: “How do you overcome the fear of asking a
customer for a price increase.” My
initial response was you need to work on your “value” proposition and marketing
message. However, after our meeting I
started to think about his question.
Then it hit me the answer resided within the question. That is, if all you are doing is asking your
client for a price increase without enhancing your products and services then
you should be fearful!
What can happen with
this approach?
From a business to business relationship, hitting a client
with a blanket price increase can strain the relationship. Some of the outcomes can include:
- The
client reevaluating the current working relationship by looking for other
suppliers to substitute for your products and services.
- Create
mistrust between your company and the client.
- Potential
eliminate your company from future contracts or projects
- Create
a potential adversarial relationship.
So how can we
increase pricing?
I mentioned earlier understanding your value proposition and
marketing message are key to communicating to your client the value your
company brings to the relationship.
However, I also believe the strength of your current relationship is
also critical. In an earlier paper I
discussed relational versus task oriented organizations. Now let’s take that one step further and
apply this to our clients. If we view
our clients only in a transactional manner we will never build the
relationships necessary to have critical conversations on value. Note I didn’t use the word price! Those companies who have a strong relation
with their clients can have these discussions on an on going basis. By doing so, the client will start to see
your company as an integral team member and not just another supplier. Keep in mind it cost your clients to change
suppliers. Bringing on a new supplier
impacts their day to day business operations.
So contrary to what they may tell you they have just as much invested in
you as you in them. The stronger the
relationship you have with your clients the less you have to fear about having
discussions about the value of the products and services you provide.
Value Strategies to
employ
Here are some strategies to integrate into your relationship
with your clients:
- Have
periodic reviews with your client to ensure they understand all of the
support you provide to them.
- Your
objective is to maximize your revenue stream from each client. Look for ways to create value added
services. Offer to partner with
your clients to reduce their cost by providing products and services they
are currently doing in house.
- Ensure
your customer support is superior to your competition and to your client’s
in house alternatives.
- Look
for ways to bundle products and services together to enhance your revenue
streams.
- The
flip side is, look for ways to debundle products and services where the
client does not value certain products or services of your offering.
Is it ever ok to just
have a blanket price increase?
This paper focused mainly on business to business
transactions. One can have a blanket
price increase if the following apply:
- Your
products are in a commodity market and you are following the
competition. The airline industry
does this all of the time. Just
beware of potential price fixing issues.
- You
want to fire a customer! We all
have had the one customer who was 5% of our revenue but 50% of our
effort. You may want to adjust your
pricing to reflex the support you provide them. However, in doing so, try to maintain a
professional and positive relationship.
- Obsolete
products. These are products where
the components and support cost are too high to maintain
profitability. However, have a
strategy to migrate your customers over to the next generation of
products.
Pricing is both and art and a science. Understanding how to articulate your value is
critical in achieving your financial objectives.
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