Today, companies are facing price shocks that they can’t easily absorb. It feels like costs are out of control.
After a decade of stable prices, coping with price volatility is an unfamiliar experience. But as we noted in the first two articles in this series (When the Price is Wrong), there are several ways to reduce cost uncertainty. Ultimately, however, you also need to pass those increased costs along.
This article describes ways to manage your price increases without damaging business relationships or sales. We also share insights into commercial practices that can limit the impact of supplier price increases on margins and ensure that sales teams stick to your pricing practices.
While sellers need to increase prices when their costs rise, there are right and wrong ways to do it.
Using a new approach that we call supply-aware dynamic pricing (SADP), companies can adapt to shifting supply chain realities by adjusting the price of every SKU on a monthly, weekly, or even daily basis.
At the same time, you should conduct a commercial best practice review, answering five tough questions:
- Is our commercial strategy aligned with our procurement strategy?
- Are we conducting regular pricing and margin reviews?
- Have we designed our sales compensation to preserve our margins?
- How good are our sales contracts? For example, do they allow us to request price increases?
- How should we communicate this plan?