Vol. 6, No. 8, October 2008
SUREFIRE TACTICS FOR DEALING WITH PRICE INCREASES: In today’s economy, how your company deals with a price increase literally can spell the difference between success and failure.
In the article below, “Tough Tactics That Work When Prices Increase,” Herbert C. Shields, President, HCS Consulting, details nine tested tactics to help your business respond to price increases.
As President of HCS Consulting since 2000, Herb Shields has 30+ years of experience as an operations executive in capital equipment, automotive, electrical machinery, and consumer products companies. HCS Consulting delivers bottom-line results for clients in purchasing and inventory management.
With this issue of the FOCUS newsletter, we are initiating a new SALES ALERT series of short articles. Below, in “Sales Interview or Audition?,” Matthew Neuberger, President and Chairman of Neuberger and Company, Inc. shares his interviewing secrets for hiring exceptional salespeople.
Neuberger and Company, Inc. is an authorized licensee of the Sandler Sales Institute. The firm is recognized for its leadership role in training "executional" leadership, sales and sales management training.
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Tough Tactics That Work When Prices Increase
By Herbert C. Shields, President, HCS Consulting
How your company deals with a price increase can spell the difference between success and failure. Today, rising commodity prices and record breaking oil costs are creating more of an inflationary climate than has been seen for many years. Companies need to focus on their purchasing functions and make sure that there are procedures and policies in place to deal with price increases from their suppliers.
Nine Tested Tactics to Help Your Business Respond to Price Increases
Many increases are announced by e-mail and may be implemented automatically through the procurement system in your company. It is important to have a procedure in place so that all increases are reviewed and appropriate action taken. Never accept an increase at face value. Even if the supplier quotes The Wall Street Journal, Business Week, etc., your buyers have a duty to try to reduce and delay the impact of any increase to your company.
- Do not accept increases based on “dear customer” form letters or e-mails. You should require a face to face discussion regarding any proposed increase, before it takes effect.
- For commodities that are significant to your product cost, involve everyone who can help in preparing for a negotiation. Can engineering offer a substitute? Are requirements going to be up or down for the balance of the year? What can we ask the supplier for in return for accepting an increase?
- Delay is a good tactic. Can the supplier hold off until all materials that are in the pipeline are used up? Can we wait until our new standards are in place? Can we have 60 days to notify customers? Any queries that need to be answered work in your favor, so be creative.
- Ask for a fixed period of time for any new pricing, even if it is as little as 30 days, that’s better than no guarantee.
- Reconsider those suppliers who had been trying to get some business in the past. They are more willing to negotiate than the incumbents.
- Management must get involved for two reasons – first, your purchasing people are feeling pretty lonely on the front line. Second, it’s harder for the salesperson to face the company president or owner than his or her usual contact.
- Can you purchase any material at the old price? Will the supplier honor the current price on open purchase orders?
- Retroactive increases should be refused, your customers would be offended, and you should be also.
- If the proposed increase is based on a raw material or energy price change that is part of the supplier’s cost of goods, make them work through the usage content calculation for your specific items. Here is an example:
- Escalation/De-escalation–Volatile commodity prices usually lead sellers to add escalation clauses to contracts and individual order acknowledgements. Any escalation clause or wording should refer to de-escalation as well. The amount and timing should be the same going up or down, but if you do not explicitly include the de-escalation piece, it may not happen as quickly as it should.
- The contract language should specify the base price and the specific terms and timing for price adjustments; i.e. – “The base price of oil is $130.00/ barrel on June 1.” Your price for “X” will be adjusted by $1.00 for every $5.00 change in the price of oil as published in The Wall Street Journal.
- Pricing will be adjusted monthly on the first of the month based on the published price on that day. If the basis for adjustment is a published price in a trade journal or newspaper, you should review the history of that published price versus actual market experience before agreeing to use it. Not all published prices reflect reality, especially those not tied to a commodity that is traded on a major exchange.
- Escalation/De-escalation–Volatile commodity prices usually lead sellers to add escalation clauses to contracts and individual order acknowledgements. Any escalation clause or wording should refer to de-escalation as well. The amount and timing should be the same going up or down, but if you do not explicitly include the de-escalation piece, it may not happen as quickly as it should.
A word of caution, your response to an increase needs to be consistent with your organization’s history with the supplier and it should be realistic. Denying the obvious (i.e. – currently steel prices are increasing for everyone) will aggravate the supplier and could lead to retaliation. Do not threaten to take business away unless you are prepared to follow through.
Strategic Sourcing Can Help You Get Ready For the Future
Tactics can help mitigate the impact of current inflation. But the best results are achieved by companies that have a strategic sourcing plan in place. The plan should answer the questions below for each commodity that you purchase:
- How many suppliers do we have? How many do we really need?
- Is the pricing for this commodity based on cost or market?
- What is the supply versus demand relationship currently and what is it likely to be in the next five years?
- How much do we know about the cost breakdown for the products we buy?
- Is there a hedging option available for the commodity or raw materials that impact the price of the commodity?
- Is there an opportunity to insource or outsource that would improve our negotiating position?
If you are concerned about your organization’s capabilities for dealing with price increases and inflation, deploying the nine tactics described above for dealing with price increases – plus, having a strategic sourcing plan in place before it is needed – can help your firm ensure continued success.
FOCUS Sales Alert: Sales Interview or Audition?
By Matthew Neuberger, President and Chairman, Neuberger and Company, Inc.
In-depth information about the full complement of FOCUS services is found in the section called SERVICES (second from the left in the red navigation bar at the top of the Home Page) www.focusbankers.com.
Often, hiring executives let their enthusiasm poison the interviewing process. They are excited to tell a potential hire how great the company is and all the opportunities available to them. Unfortunately this is a recipe to hire poor candidates.
Interviewing for a sales job should be an audition. It’s a chance for the hiring executive to get a dry run from the sales candidate and see how they perform. Use the interview process as an audition to find out how well sales candidates really perform.
How Does an Interview as “Audition” Work?
So how does the audition work? The secret is setting the interview up like a sales call. How do prospects typically act? They are often defensive and skeptical when we first meet them. Rarely are they bubbling over to tell us about themselves or their company.
When interviewing, it’s in our best interest to take on the qualities of a prospect. Be distant, be apathetic if necessary, but make it the candidate’s responsibility to warm us up. This will be a true representation of how they deal with prospects. See if they shut down or get upset at us.
This is a simple way to weed out sales people that have problems with harsh prospects. As you move into the interview, ask questions like a prospect. See if the candidate can uncover anything about our company or the position.
Don’t offer that information up to them. Find out everything possible about them and see how much they can discover about us in return. This will display their ability to ask questions and uncover what a prospect is looking for.
Structure the Interview as a Sales Call
If we structure the interview as a sales call, we get to see a live test run of the candidate. If we are enthusiastic and overly welcoming, we are just projecting what we desire onto the candidate. Most sales people are likable and well spoken. They can enter our office and be dynamic. They frequently will be likable.
However, this doesn’t necessarily mean they can sell. It means they can interview which is an entirely different learned skill set. If they can deal with “acting like a prospect,” then they can likely handle real prospects. After they prove this ability, we are free to discuss the company and whether they are a good fit for the position.
When the audition is successfully completed and we are fully convinced that they are an asset to the sales force, then we can advertise all the benefits and opportunities the position has to offer. If they fold when we are “the prospect,” it is safe to remove them from the process.
Acting like a prospect is simply an additional screening step. It avoids having a new hire sell more than just themselves for the job. It is a tangible signal that they can deal with a typical selling situation and have the ability to move the process forward.
