Occasionally we get approached by the CFO rather than the CEO. What is usually on their mind is a need to ‘tidy-up’ pricing in their business. You see hundreds of different prices for different products to different customers seems unnecessary and confusing to them.

It is true that the price file in most mature companies is a deal more complex than it needs to be and could stand some sorting out. However, the CFO is usually forgetting something. They seem to think that the tidy up is an administrative exercise performed by someone sitting at a computer staring at a spreadsheet.

We sometimes have fun shattering this illusion by asking a simple question: “If we are going to harmonise the prices for you, would you like us to harmonise them up or down?”

It takes a mere moment of thought before they say “Up please”. Whereupon, we say “Then someone is going to have to tell some customers they are going to get a price increase… hadn’t we better talk to the Sales Director?”

It had not occurred to them that generally speaking (but not always) customers notice price movements.

A price file filled with lots of different prices might be a sign that someone has carefully assessed the sensitivity of each customer and each product and priced it accordingly. If this were true, the more price combinations the better in theory. However in our experience much of the untidiness comes from poor attempts to price by badly trained salespeople and then negotiated down by customers. Often the deal was done years ago against a promise of mind-boggling volumes that never materialised in a marketplace with different dynamics and a different competitive landscape…. just nobody has had the gumption to go back to the customer and re-negotiate an up-to-date appropriate price.

Tidying up a complex price file can make you a fortune. But our advice is let’s get the Sales Director in on the project at the outset… because sooner or later we are going to need him.

…unless of course you really want to harmonise prices to the lowest common denominator. In which case you probably don’t need our help.

Nobody likes a price increase and nobody likes a nasty surprise. So why is it that most companies insist on delivering their price increases as a nasty surprise.

The trouble with increasing prices to regular existing customers is that they have the strongest of benchmarks upon which to base their judgement of your new price…. namely the price you used to charge them. The issue then becomes, not whether the product constitutes value at the new price (in reality a few percent difference in the price is unlikely to fundamentally make the value unappealing), rather that you have had the temerity to move the price.

So logically what you want the customer to do is make a rational evaluation of your product at the new price and say to him or herself  ‘It is not worth risking moving my business for a couple of percent’. The closer you can get to ambivalence the better. We call this Staying the right side of the line of rationality.

What many companies manage to do is drive their customers across to the wrong side of the line of rationality by making a price increase a nasty surprise and bouncing it on the customer at the last minute. Remember those emails or letters that start ‘Dear Customer…. due to cost pressures beyond our control…. with effect from the first of next month…’ You can almost imagine the supplier sending them out then taking the phone off the hook and hiding under the desk.

On the wrong side of the line of rationality lies anger, a desire for revenge, retribution and rash decision making. We have seen customers cut their noses off to spite their faces by shifting their business hastily to an unsuitable alternative supplier.

The trick to implementing an increase is to do it slowly and gently. Drop hints well in advance that the price in on the move without saying when and by how much. Use the passive voice to depersonalise the action “Price changes are likely to happen in the new year”. Use all communication channels open to you to lodge the notion of an increase in the customer’s head without giving them a chance to argue the detail.

If you place a sufficient time between announcement of the intention and final confirmation, then even those customers who were furious at the outset will have had time to let the steam out of their ears.

People worry about competitors hearing about the increase and taking advantage. In most markets your increase will go unnoticed. In any case any sensible competitor would take the hint and raise their prices too. (PS Don’t call them and suggest this. Collusion is illegal)