I was recently sent a copy of a HBS article entitled “Seven tips for managing price increases.” I think that in today’s economy, it is not only tough to get a price increase approved by a customer, but it is something we shouldn’t have to deal with at all. So I asked myself: Why do we (as B2B salespeople) put ourselves through this time and again? Because, no matter what the reason for wanting the price increase might be, it is not going to be well-received by our customers. In many industries, such as the chemicals industry, price increases are nothing more than a necessary evil that everyone has learned to deal with. So, instead of thinking of all the tactics and maneuvers that can be used to introduce price increases; why don’t we find a way to avoid them altogether?
By avoiding them altogether, I don’t mean doing away with them, but I do mean doing away with having to ‘introduce’ them. If we are able to negotiate contingent contracts up front with our customers, then price increases will take care of themselves, contingent on the conditions set forth in the contract. However, since we want to negotiate a fair deal for both parties, we must always keep in mind that contingency contracts are a two-way street. If prices for the commodities or raw materials that drive our pricing come down, our customers will expect a price decrease. Or in other words, you can’t have your cake and eat it too!
There are two very important things to keep in mind here. First, is that although we are focused on negotiating a contingency contract that allows us to capture the value of our goods in real-time (or near real-time), we still strive to capture a favorable share of the agreement zone. Second, if our value proposition changes (we add a service or enhance the product) we are entitled to re-negotiate based on the new value we provide. It’s important to capture your value, while distancing yourself from the ups and downs of the markets that can potentially erode your margins.
http://hbswk.hbs.edu/item/5957.html (article link)