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How to communicate price corrections?

Imagine your first month the job as the pricing manager. You discover lots of price inconsistencies, negative-margin prices etc. that should be fixed. Great job! Lot’s of margin improvement opportunities there! But how will you communicate this to a customer, without sounding like “here we increased your prices because we noted they were too low”?

I often found the “communication of non-regular price updates” a friction point between the pricing team and the sales team. This can even lead to block the margin-improvement project, despite the fact that they are reasonable and justified from an internal standpoint. Even the annual price increase is not an easy subject to discuss for an account manager, how can an expected one be?

I figured the following list of actions can help:

  • Check the impact of the price corrections. Are you correcting negative margins, or lower-than-expected margins? Can we wait until the year-end to combine it with the annual price increase? If that is the case, better wait and avoid this discussion with the customer.
  • If it cannot wait, try to be sufficiently transparent to give right reasons for your corrections: an increase in standard costs, a change in the supply chain, the fact that these low prices had been agreed for a project that has ended, the prices were agreed based on a volume that was not respected etc. Be ready to give the right reasons to explain the change.
  • Don’t rush – you might have notice periods to follow, or your customer might have quoted to their customers based on current prices. Agree on a date for implementation with your customer.
  • If the price corrections are too high, make a longer term plan – divide it into 2 or 3, do the first increase now, let the other two increased go into next year’s price increases.
  • If the price correction has an impact on your customer’s business, try to sweeten it with a promo, to make the transition softer.

What is important is that the understanding is established both-ways: The customer understands that current prices are hurting you economically, and you understand the impact of the corrections in your customer’s business and a common path is drawn together.

Do you have other recommendations? Feel free to share it in the comments!

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