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Positioning a Price Increase While Preserving the Relationship

Most businesses are confronted with disrupted supply chains, indexation, and a shortage of raw materials. Consequently, profit margins are under pressure. Sales leaders need a plan for delivering price increases to customers while preserving the relationship.

Doing so means:

  1. Applying the Principles of Behavioral Economics
  2. Committing to a Three-Part Plan for Delivering the Price Increase
  3. Leveraging a Trading Strategy if Needed

Applying the Principles of Behavioral Economics to Understand Price Increase

Sales professionals should consider three key biases influencing the customer’s choices.

Loss Aversion 

Loss aversion shows us that the disappointment people feel about losing something is much greater than the amount of joy they get from gaining something of the same value. Sellers should remind the customer of the certainty they get from continuing with the solution even if it is at a higher price. 

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Anchoring 

People use a reference point when making decisions. This reference point acts as an “anchor.” One example of an anchor is market research showing the elevated costs of similar solutions.

Scarcity Bias 

People will associate more value to a product or service that is considered scarce. Sales professionals should make it clear that part of the reason for the higher price is the scarcity of resources available.

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In Short:

  1. Remind the customer of the certainty they get from continuing with the solution 
  2. Provide an anchor as a psychological benchmark 
  3. Make it clear that the higher price ensures availability despite economic disruptions 

Committing to a Three-Part Plan for Delivering the Price Increase

A formal plan enables the sales leader to apply the same strategy across a diverse group of sales professionals.

Prepare

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As sales professionals prepare, they need to conduct research on market trends and the competitive landscape. They must also analyze the strength and weaknesses of their solution.

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Notify

Take deliberate steps to set the context for the increase while reinforcing the relationship and explaining the rationale for the change.

Respond

Let the customer know that their objection has been heard. This is a valuable opportunity to (re-) shape perceptions of value so that the customer can understand why the higher price is warranted.

In Short:
  1. Understand the risks and research market trends and competitive pressures
  2. Set the context for the request while reinforcing the relationship 
  3. Neutrally acknowledge objections, restate value, and stay silent

Leveraging a Trading Strategy if Needed

When a sales professional engages in trading, they are giving something and getting something in return. Put simply, trading is cooperative. 

Know What to Trade 

Know the value of what is being traded. Before negotiating, a sales professional needs to fully understand the intrinsic and extrinsic value of every aspect of the commercial terms. 

Know When to Trade 

Space the trades in increments to make their value more perceptible. Presenting trades in a cluster gives the appearance that several trades are in fact just one. Breaking up the trades allows the sales professionals to deliver them in order of decreasing value. 

Know How to Trade 

Use specific, intentional language that exudes confidence and clarity. The customer needs to be able to easily understand what the sales professional is offering and what is expected in return. 

In Short:
  1. Know the value of what is being traded before trading begins 
  2. Space the trades in increments to make their value more perceptible 
  3. Use specific, intentional language that exudes confidence and clarity 

Positioning a price increase gives sales teams the skills and confidence to increase profitability from existing contracts in a rising cost environment. 

[To share your insights with us, please write to sghosh@martechseries.com]

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