10 success factors for dealing with inflation and cost pressures
Companies are in an environment of extreme inflation, supply chain disruptions and energy price hikes. As a result, they are facing heightened cost pressures, which if not acted upon, can eat into margins. Jos Eeland en Juriaan Deumer, partners at Simon-Kucher & Partners, outline 10 key success factors for effectively managing inflation and protecting margins.
1. Act now!
Inflation and volatility are expected to stay for coming years. Develop the muscle to manage uncertainty, forecast and plan ahead to minimize time leaps between rising costs and price increases.
2. Take control and lead
Undercapacity and strategic sourcing (dis)advantages imply choices have to be made about allocation and price; keeping all customers somewhat satisfied means no one is satisfied. This is a leadership task.
3. Set up a multi-disciplinary pricing squad team
Given current market dynamics, pricing needs a cross-functional approach where Product, Finance, Marketing, Sales, and Operations come together. Each function has a different angle on market dynamics and pricing implications.
4. Manage for profit
Even though it seems obvious to focus on profits, many organizations still steer based on volume and market share. With rising inflated revenues, profit protection is the only way to ensure a resilient and healthy business in times of high inflation.
5. It’s wise to talk costs with customers
Value-based pricing is the name of the game, but even the strongest brands need to talks costs if they want their customers to swallow yet another price increase. Make sure you know your cost (development) using fact-based insights.
6. Differentiate price increases
The ‘ease of the increase’ will differ per customer and product group. Differentiated price increase targets are key; across customers and across the product portfolio.
7. Let commercial necessity lead and legal contracting follow
Many find their commercial agreements are not geared for current circumstances. Opening up contracts is a necessity. Commercial should be leading in setting up new rules of the game, including raw material clauses and price indexation.
8. Prepare the story to trade
A blanket price increase with poorly prepared sales argumentation rarely ever achieves its goals. Especially in big deal negotiations with key accounts, the success of a deal is often determined during preparation and a solid value story.
9. Incentivize and reward your sales force
Realizing yet another price increase is not easy, conversations are fiercer than ever. Train, prepare and back-up your sales force. Ensure best practices and high performers are celebrated, and reward performance.
10. Build a long-term capability
Many companies have to develop their price increase muscle after many years of low inflation. It is an opportunity to learn and future-proof sales teams. The coming period will separate the best from the rest.