In 2022, a tough sell to buyers is on the horizon: numerous price hikes in response to inflation. While a small bump in inflation typically affords companies a legitimate opportunity to adjust its price strategy for a changing marketplace — our economy currently faces a steep slope.
The Bureau of Labor Statistics reported a 6.8% Consumer Price Index inflation rate in late 2021 — a rate not recorded since 1982. A collection of factors contribute to inflation and, unfortunately, many of these are not in our direct control as business leaders. Regardless the cause, the reality remains that labor and raw materials are costing businesses more.
While the majority of buyers will be aware of the current inflationary environment, sellers are still put in a precarious position. Price increases spur pushback. Price shocks often invite buyers to glance toward your competition.
While your leadership needs a solid pricing strategy to offset inflation for sustainable revenue performance, your selling teams must be enabled with an objection reframe to communicate and justify the price increase in terms of value. Let us dissect each element below for a solid pricing strategy during inflation.
PLAN: A SUSTAINABLE PRICING STRATEGY
Your pricing strategy in response to the inflationary environment must become a leadership priority in early 2022. Companies struggle to adjust pricing strategies even in non-inflationary periods. According to surveys, two-thirds of companies do not gain even half the price increase they set-out to achieve. For example, if a company has a goal for 3% gains with an inflation rate of 4-5%, it will need to raise prices by 8-9%.
- Encourage growth: reward your customer for buying more
- Be predictable and understandable: no PhDs required
- Reduce churn: reward your customer for staying loyal
- Recover fixed and variable costs: make sure your price protects your profits
Determining your price increase is just part of this. Preparing and communicating a story of value to justify that price increase can be an ongoing challenge for sellers. We are here to help simplify it — keep reading.
ENABLE: VALUE IN THE OBJECTION REFRAME
Buyers are keenly aware of the inflationary environment at a macro-level and anticipate paying more. But how much more? Buyers may not realize until they see the numbers. Salespeople need to prepare for uncomfortable conversations where long-time buyers may feel gouged and newer prospects might feel initial shock. In an objection reframe, sellers need to justify the price hike.
The technique: Provide key talking points for salespeople around the cost increases your business is experiencing and how you are absorbing as much of those cost increases as you can for the buyer to still maintain sustainable profits.
Labor rates are increasing everywhere. Legislation is increasingly making all companies responsible for costly benefits such as extended unemployment, sick leave and paid family leave. In addition, raw material costs are higher due to increased transportation costs, scarcity of commodities and supply chain interruptions.
If possible, you should emphasize the substantial amount of time that has passed since your last price increase, and emphasize the internal steps you are taking to mitigate the cost increases you are experiencing to pass as little as possible along to your customers.
Most importantly, sellers need to share a compelling value proposition story that differentiates your solutions from your competitors’. The value your solution offers derives from how your product or service is different from the competition and how you uniquely solve problems for your customers. While no business will escape the grips of inflation, your leadership has little control how your competition will respond with its pricing strategy. But your selling teams can make the inevitable price hikes as reasonable and understandable as possible for your buyers.
The Mereo way: Prepare a compelling story that weaves in the cost increases from the overall high inflationary environment, the mitigating factors that you have implemented in your pricing strategy, and the unique way you solve the customer’s pains. Stand firm on the challenges you can help your buyers overcome. Most importantly, focus on the differentiated value you can deliver to them. That value can often result in more downstream value to your customer’s customer, perhaps commanding higher prices downstream as well.
Mereo revenue performance consultants have developed pricing strategy principles and models to help selling organizations elevate their value selling. Unlock the expert insights in order to prepare intelligently for 2022 success in Part 5 of the exclusive Elevating Revenue Performance With Solution Management eBook.