Managing your price increase: A few useful tips
The realities of Brexit are now starting to set in. We have seen many examples recently of CPG companies taking price increases to their customers, and the fall out which goes with it. There was Marmitegate, then Walkers & Birds Eye, other categories such as beer, bread & baked beans came next. The Petfood market is the latest to see increases in price.
This is the tip of the iceberg. In the near future we will see hundreds of suppliers having to renegotiate pricing & trading terms with retailers as a result of the increases in their costs.
Consumer goods companies will have to think more creatively about how to plug the holes in their P&L these cost increases have opened up.
Given the intensely competitive environment which many suppliers operate within; passing a cost increase on to the consumer through a price increase is not always an option. Suppliers & retailers are extremely conscious of consumer price sensitivity, especially in the current climate. Therefore, it is important to approach this matter very carefully.
Here are a few useful tips to help inform your price increases & manage the change successfully with your customer. So, what can you do to make your price increases as smooth as possible?
Use price elasticity data to forecast the volume impact of every price increase across the portfolio to give you a clearer picture of what might happen.
Model the P&L impact for both the supplier & the retailer, to find the optimal balance between revenue and volume change to minimise any adverse impact for both the supplier & the retailer. Approaching the price increase from both angles will make it a much easier sell when you go into conversations with your customer, anticipating how they will react.
A surgical approach versus a blanket price increase gets a very different response from retailers. It shows a level of consideration & sensitivity for the customer rather than appearing to ‘pass the buck’.
A balance needs to be struck between solid thinking and limiting complexity. This is achieved by taking a tiered approach to variable price increases across your portfolio. Make sure there is a clear explanation & rationale for each of the tiers.
Integrity is important. There may still be difficult conversations on certain SKUs, but being able to demonstrate the impact of proposed changes in an informed way will move the agenda forward and take the emotion out of the discussion. Finally, it is important the team fully understand the price changes and the portfolio impact, and are trained to present this in a compelling way to their customers.