Here’s how to adjust prices
A global management consultancy’s price expert shows the way. Navigating these turbulent economic times is a major challenge for many a logistician. Although inflation decreased again slightly last year, companies in our industry nevertheless continue to face the problem of significant cost increases. At the same time, the pressure to grow and compete in a volatile market environment remains unabated.
Kornelia Reifenberg, a partner at the global management consultancy Simon-Kucher, told the ITJ recently that “successfully adjusting prices in today’s volatile economic situation is absolutely crucial for logistics providers.”
When inflation rises, firms should be sure to react as quickly as possible. As soon as it becomes predictable that costs are set to exceed what could be called a normal level, then companies should immediately approach customers and announce their intention to adjust prices.
The speed of action may well prove to be central, as may the fact that a firm addresses as many customers as possible, without exception. This is because in times of inflation, every month of delay and every client for whom an exception is made represents a financial loss.
Every customer is unique
“Companies that have already broken down their cost structure for each individual customer they have in their portfolio can plan their price adjustment targets more precisely – and simultaneously justify them better in negotiations,” Reifenberg emphasised. Merely pointing to general inflation as the cause can meet with resistance from customers. It takes more substance and detail to create understanding as well as genuine acceptance of adjustments.
It’s important that negotiators differentiate between companies and don’t simply apply a blanket approach. Not only do effective costs vary, but so does a customer’s willingness to accept price adjustments. A blanket approach, in which every customer receives the same suggestion, isn’t an ideal philosophy.
Successful companies determine in advance the potential for price increases per customer, by using a number of relevant indicators. These could include the duration of the business relationship so far, the quality of the customer, or the client’s economic situation. This will allow a logistics services provider to differentiate the price adjustment according to these factors.
Set three prices in your mind
Prudent enterprises first set an overall target for the price increase that they’re seeking to implement, and then break it down per customer. They also set three prices per client. The starting price is the first benchmark, it serves as an anchor to start the negotiation. It can be high, yes – but not unrealistic.
Reifenberg says that “the target price comes second, the one that can be, and should realistically be, achieved. It should take into account both the development of costs and the expected willingness of the customer to pay.”
The third price should be considered the ‘bottom line’ – the absolute minimum that has to be achieved at all costs and that can’t be undercut without renewed internal consultations.
Constructive talks
Even before negotiations begin logisticians should consider the alternatives they can offer to price increases. Additional business in return for price concessions? More services to make the increase more palatable? A reduction in the scope of services, and thus a smaller price increase?
Reifenberg says that “offering such alternatives opens the way to constructive talks with clients and increases the chance of measures being accepted.”
That’s why she advises logisticians to increase prices at regular intervals, because this way clients get used to regular adjustments and are better able to accept them.