Hang on to your price increase...
You've just worked hard at securing a price increase, weeks of hard work and intense discussions. Well done, your plan now shows a healthy price driven revenue upside verses last year to offset any Brexit impacts or raw material inflation you are forecasting.
It’s been hard work and totally worth it….but now you need to hang onto it. Every year after significant pricing is taken in the market, we find that come June people are getting in touch with us wanting our help to understand where their price increase has gone.What happened to that revenue upside (the input costs have materialised) but what happened to the revenue to offset it?
Here are some of the most common areas where your hard fought for price increase can become eroded:
- People feel flush : Your account teams have just done an amazing job negotiating a price increase, their “forecast” revenue figures are up, the edge has been taken off their plan and they feel they’ve got a little more latitude with their customers to invest more and be a little more generous.
- People feel indebted : Despite hard negotiations, your customer has been great and has supported your price increase, you owe them one and they’re not shy about reminding you…
- Trade terms cash inflation : The devil is in the detail, did your analysis include all the incremental spend from % terms now being applied to a higher price? What about those stepped revenue terms that are now easier to achieve?
- Promotional mechanic funding : Did you fully analyse the impact of promoting your products at the new prices, how much does it now cost to reach those key psychological price points? What does maintaining margin now cost you?
There are many more but the key question is - what can you do about it?
The good news is that there is plenty you can be doing to mitigate this risk:
Re-do your forecast in detail : the pricing upside you forecast may have been based on different prices to what was finally agreed, refresh the forecast and make sure you now do it in more detail. Calculate the true impact to % trade terms, stepped agreements and ensure you’ve got updated promotional plans using the new mechanics and funding rates. If it’s bad news the sooner you know the better, waiting until June and seeing the impact in H1 actuals, leaves you with far fewer options to get the full year back on track
Ensure your investment management process is robust : Have you refreshed all your promotional guidelines, floor prices, investment guidelines? Are all your team briefed across the whole commercial team? If you don’t have updated guidelines then people will make other assumptions, often not the most profitable ones.
Follow process : if you don’t have a robust investment management process then get one formalised. If you do make sure you are following it, are the meetings and reviews happening? Are you getting the KPI’s reported to see that the process is happening and being adhered to?
The key message is that whilst you’ve done a great job securing your price increase you now need to stay vigilant to keep hold of it. Ensure you act quickly and decisively, make sure your team have all the information they need and expectations and guidelines are clear and be aware that your customers will be leveraging all the good-will they can to chip away at your hard fought increase.