With raw materials prices increasing across a broad range of commodities and further inflation likely as the world economy continues to recover, maintaining margins is increasingly difficult. The higher and more frequent cost increases become, the greater the adverse effect from delays in passing them through. Still, in competitive industries, no competitor wants to take the lead in raising prices and the ire of customers.
In this 30-minute webinar, renowned pricing strategist Tom Nagle shares his perspectives on how organizations have succeeded in meeting this challenge in the past.
Dealing With Rising Commodity Prices with Tom Nagle
1. Dealing with Rising Commodity Prices
March 23, 2011
Copyright ยฉ 2011 by LeveragePoint Innovations Inc.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means โ
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This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
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1 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
2. Our Presenters Today
Dr. Tom Nagle Jay Manson
Senior Partner, Monitor Group VP Sales, LeveragePoint
Lead author of the top-selling book on Value-based marketing, pricing and sales
pricing for two decades, The Strategy expert. Formerly at Vendavo and the
and Tactics of Pricing, 5th edition 2010. Strategic Pricing Group.
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2 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
3. Dealing with Rising Commodity Prices
Rising commodity prices is not a short-term phenomenon. CRB Index of 17
essential commodities has been rising steadily all decade. Given recent
monetary policy, the trend is more likely to accelerate than abate.
How will your companyโs margins and capital requirements be affected?
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3 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
4. We Need to Get Ahead of Rising Material Costs
Supply Chain Efficiency
We are victims of our supply chain
optimization success
Hedging
Customer building up inventories will
increase demand instability and the
appearance of price sensitivity
We feel rising material costs sooner
We want need to avoid sales dips and revenue lag
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4 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
5. Communication
Our customers know itโs coming,
but are more comfortable delaying as long as possible
So how do we overcome their resistance and accelerate the process?
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5 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
6. Understand and Manage Customersโ Fears and Expectations
Causes of Resistance Ways to Manage
๏ฌ Belief that they canโt pass along ๏ฌ Donโt sneak up on them! Warn
any increase quickly enough to of anticipated commodity cost
avoid near term hit to profit increases and relationship to
product or service cost
๏ฌ Perception of โunfairnessโ (we ๏ฌ If necessary to give adequate
are struggling too and you are advance notice, hedge a few
not being a good partner) months in advance
๏ฌ If must increase without warning,
๏ฌ Fear of becoming competitively give customers who agree
disadvantaged (or hope of short immediately & contractually to
term advantage) maintain volume and accept
increases the ability to take in
steps; โspotโ customers take all
at once
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6 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
7. Understand and Manage Customersโ Fears and Expectations
Causes of Resistance Ways to Manage
๏ฌ Announce full price increase, but
๏ฌ Belief that they canโt pass along
then give sales reps ability to
any increase quickly enough to
make pre-authorized tradeoffs
avoid near term hit to profit
between increase and
customerโs acceptance of cost-
๏ฌ Perception of โunfairnessโ (we reducing behaviors
are struggling too and you are โ Less frequent deliveries of larger
not being a good partner) orders
โ Lower guaranteed product specs
๏ฌ Fear of becoming competitively that could still meet need
disadvantaged (or hope of short โ Electronic orders, info sharing for
term advantage) demand planning
๏ฌ Be transparent about impact on
costs. Make increase a variable
surcharge tied to objective index
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7 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
8. Understand and Manage Customersโ Fears and Expectations
Causes of Resistance Ways to Manage
๏ฌ Belief that they canโt pass along
any increase quickly enough to ๏ฌ NEVER negotiate away the
avoid near term hit to profit ultimate increase, just the terms
for getting there
๏ฌ Perception of โunfairnessโ (we ๏ฌ Give large customers โmost-
are struggling too and you are favored nationโ commitments
not being a good partner) relative to direct competitors
๏ฌ Only as a last resort to save a
๏ฌ Fear of becoming competitively โmust haveโ customer, agree to
disadvantaged (or hope of short delay timing of increase until
term competitive advantage) equal quality competitors match
the increase
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8 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
9. What Keeps Us From Raising Price
No competitor wants to go first, even
while none wants to be left behind
What can you do, within the law, to ease the transition to a price
level that still re-establishes competitive margins?
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9 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
10. Understand and Influence Industry Competitive Dynamics
Causes of Delay Ways to Manage
๏ฌ Fear of losing sales to ๏ฌ Industry market leader (the
competitors that delay following others use as their price
increase reference) must lead!
๏ฌ Sales force unprepared to โ Describe need but delay
explain increase to implementing until other
customersโeasier to say just industry leaders have
expressed similar perceptions
following industry
and intentions
โ Roll back if necessary to
demonstrate that wonโt happen
if other large share firms not
prepared to follow
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10 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
11. LeveragePoint Value Management Improves Price Realization
LeveragePoint provides sales with the language to capture price in the field.
Price Increase Sales and Customer
Strategy is Pricing Conversation
Created is Captured
Price
Increase
Sales Customer
Finance Package
Passed to
Sales
How effectively are we capturing the price increase?
Where are we experiencing resistance? Why?
How do we do it better in the future?
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11 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
12. Time Is of The Essence
Pricing for sustainable growth requires:
๏ผ Value-based, not cost-based
๏ผ Profit-driven, not share-driven
๏ผ Proactive, not reactive
Pricing technology enables growth
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12 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.
13. Thanks for watching!
www.leveragepoint.com
jmanson@leveragepoint.com
Jay Manson
(781) 727 โ 5977
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13 Copyright ยฉ 2011 LeveragePoint Innovations Inc.
Copyright ยฉ 2011 LeveragePoint Innovations Inc.