Paper

Putting up your prices used to be a relatively simple matter. You would go along to your customers for a quick chat, underline the good long-term working relationship that you’ve built up, and then put the prices up by a reasonable amount that you’re both happy with. As we now know, those days are long gone.

Buyers are now more professional and trained to demand high quality and service as standard, while creating competition to ensure that prices are continually moving downwards. Even smaller customers are aware that they have options, and expect rock-bottom prices despite the small volume and value of their custom. Tenders, reverse auctions and facilities management have all contributed to this pressure on pricing. As one printer said to me recently: “Even the customers who don’t pay expect a cracking deal.”

This expectation of ever-decreasing prices cannot be infinite – especially if there are significant cost increases, as we are currently seeing in paper. So, how can you reverse this trend and start to increase prices, while minimising the risk of losing business?

Having worked with many different print-related businesses over the past eight years, my consultancy business, PiP Associates (Profit Improvement Programmes) has considered very carefully what motivates buyers – other than price. We have identified a number of factors, which together often outweigh price alone. These include reducing the buyer’s risk through having contingency plans, the development of new products and ideas, which will help customers promote their business, making the buyer’s life easier by taking the hassle out of dealing with us and also the risk, cost and time-consuming aspects of change.

In short, most customers are looking for good value for money and if we are selling on price alone, it is probably because our overall offer is not strong enough, or we have not identified and sold our real benefits to the customer.

Many print businesses have taken control of their manufacturing, distribution and quality. Who, though, is really taking control of pricing on a daily basis, ensuring that margins are maintained and improved wherever possible and that we don’t give away add-on services that we should be selling?

PiP Associates has worked with a wide range of graphic arts and related businesses on pricing and margin improvement. Here are 10 ideas for increasing prices, while minimising the risk of losing business.

1 Belief – everyone in the business must have belief and conviction and be “humble but resolute” in implementing price increases. In other words, you can’t be half pregnant – you are either increasing prices or you aren’t. Failed attempts to increase prices shatter confidence and credibility and make future increases even more difficult. In our experience, the vital ingredient here is leadership from the top. We recently trained a large group of salespeople in the UK and Europe. Their managing director attended each workshop to announce at the start that he was personally underwriting any business losses, that the training was aimed at minimising losses and that he would fully support the sales team in the implementation process by visiting larger customers with them. Guess what? This business astounded themselves with their success and the feared loss of business didn’t materialise. We have seen this time and time again – the fear and threat of a loss of business often outweighs the real likelihood.

2 Preparation – this is absolutely key. Whether price increases take a shotgun approach (applied to all customers due perhaps to significant cost increases) or a rifle approach (targeting individual customers where margin improvement is required), in our experience, being well prepared greatly increases the chances of success. This includes not only general preparation for the price increase, but also account-specific details. Practise and role plays are also important. When we produce a new job, we run trials and proofs, so why not do the same when increasing prices? After all, a price increase is the single most effective way of achieving bottom line improvement.

3 Rationale – if you are going to increase prices, the buyer doesn’t give a toss about your margin recovery, your increased wage bill or your need to invest in new technology. What’s needed is a clear and justifiable rationale. If raw materials have gone up significantly, then you need to clearly explain the contributing factors. You also need to get the numbers right. For example, what percentage of the finished costs relates to the raw material increase? A clear and justifiable rationale makes it far easier for the buyers to accept price increases and, in turn, justify the increased costs to their superiors.

4 Proof – you will need to provide support material, such as statistics, proofs and simple sales aids, to support your case. This will structure your discussion, ensure that all of your people are singing from the same hymn sheet, give validity to your arguments and allow buyers to justify their actions internally.

5 Customer segmentation – by grading customers, based on their profit contribution, you can have a strategy for effectively bringing unprofitable customers back into profitability. For example, if you were going to have a general increase of, say, 7%, you could decide that C category customers need a 10% increase. This helps improve your overall profitability without putting at risk accounts that already generate good profits.

6 Cost to serve – when segmenting your customers, you need to consider not only price, but also the costs of servicing that customer. Complex jobs, short lead times, special delivery requirements, small runs, stockholding and technical support are all elements that may significantly increase the cost of servicing a customer. Look at individual account margins to ensure that you understand the real profitability of each account.

7 Problem solving – look for problem-solving ideas that improve the overall deal for the customer and you. This helps both parties to move away from focusing just on price, differentiates your service and convinces buyers that you are working with them, rather than against them. Make sure, however, that problem-solving ideas are good for you as well as the customer, otherwise problem solving becomes just another way of giving things away. But remember – the problem-solving ideas are in addition to and not instead of the price increase!

8 Set limits – before you start negotiating price increases with a customer, you need to decide where you’re going to start and finish. The principle is to aim high, leaving room for negotiation if necessary. Salespeople also need to understand that the bottom line or ‘walk away position’ is just that. And it is only marginally better than walking away from the business altogether, to ensure that every deal isn’t done at the walk away price.

9 Objections – there is a theory that in selling anything there are only 10 likely objections. We have tested this theory and it is true. Try it for yourself. Before you get to number 10 of the common objections that customers raise, you will probably have dried up. This is good news, as we can prepare plausible answers, giving salespeople confidence to answer the most likely objections.

10 Results – you must monitor results, account by account, on an ongoing basis and make pricing and margin improvements part of your ongoing strategy. This helps to avoid nasty surprises with customers as we are continually ‘price-conditioning’ – ie talking up prices every time we see them.

Through these 10 principles, we have guided many businesses through increasing their prices with great success. PiP Associates has vast experience in training and consultancy across the print, paper and packaging industries, helping clients to improve their performance and profitability. Our experience and best practice, gathered from working with businesses ranging from multinational conglomerates to small, independent businesses, means we are ideally placed to provide practical support that achieves results.

For more information about PiP, call 0113 289 2686