Dealing With Rising Commodity Prices with Tom Nagle

Copyright © 2011 LeveragePoint Innovations Inc.1 Copyright © 2011 LeveragePoint Innovations Inc.1

Dealing with Rising Commodity Prices

March 23, 2011

Copyright © 2011 by LeveragePoint Innovations Inc.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means —electronic, mechanical, photocopying, recording, or otherwise — without the permission of LeveragePoint Innovations Inc.

This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.


Jay Manson

VP Sales, LeveragePoint

Value-based marketing, pricing and salesexpert. Formerly at Vendavo and theStrategic Pricing Group.

Dr. Tom Nagle

Senior Partner, Monitor Group

Lead author of the top-selling book onpricing for two decades, The Strategyand Tactics of Pricing, 5th edition 2010.

Our Presenters Today


Dealing with Rising Commodity Prices

Rising commodity prices is not a short-term phenomenon. CRB Index of 17essential commodities has been rising steadily all decade. Given recent

monetary policy, the trend is more likely to accelerate than abate.

How will your company’s margins and capital requirements be affected?


We Need to Get Ahead of Rising Material Costs

Supply Chain Efficiency

We are victims of our supply chainoptimization success

Hedging

Customer building up inventories willincrease demand instability and the

appearance of price sensitivity

We feel rising material costs sooner

We want need to avoid sales dips and revenue lag


Communication

So how do we overcome their resistance and accelerate the process?

Our customers know it’s coming,but are more comfortable delaying as long as possible


Understand and Manage Customers’ Fears and Expectations

Causes of Resistance

Belief that they can’t pass alongany increase quickly enough toavoid near term hit to profit

Perception of “unfairness” (weare struggling too and you arenot being a good partner)

Fear of becoming competitivelydisadvantaged (or hope of shortterm advantage)

Ways to Manage

Don’t sneak up on them! Warnof anticipated commodity costincreases and relationship toproduct or service cost

If necessary to give adequateadvance notice, hedge a fewmonths in advance

If must increase without warning,give customers who agreeimmediately & contractually tomaintain volume and acceptincreases the ability to take insteps; “spot” customers take allat once






Fear of becoming competitivelydisadvantaged (or hope of shortterm advantage)

Ways to Manage

Announce full price increase, butthen give sales reps ability tomake pre-authorized tradeoffsbetween increase andcustomer’s acceptance of cost-reducing behaviors

– Less frequent deliveries of largerorders

– Lower guaranteed product specsthat could still meet need

– Electronic orders, info sharing fordemand planning

Be transparent about impact oncosts. Make increase a variablesurcharge tied to objective index






Fear of becoming competitivelydisadvantaged (or hope of shortterm competitive advantage)

Ways to Manage

NEVER negotiate away theultimate increase, just the termsfor getting there

Give large customers “most-favored nation” commitmentsrelative to direct competitors

Only as a last resort to save a“must have” customer, agree todelay timing of increase untilequal quality competitors matchthe increase


What Keeps Us From Raising Price

What can you do, within the law, to ease the transition to a pricelevel that still re-establishes competitive margins?

No competitor wants to go first, evenwhile none wants to be left behind


Understand and Influence Industry Competitive Dynamics

Causes of Delay

Fear of losing sales tocompetitors that delay followingincrease

Sales force unprepared toexplain increase tocustomers—easier to say justfollowing industry

Ways to Manage

Industry market leader (theothers use as their pricereference) must lead!

– Describe need but delayimplementing until otherindustry leaders haveexpressed similar perceptionsand intentions

– Roll back if necessary todemonstrate that won’t happenif other large share firms notprepared to follow


LeveragePoint Value Management Improves Price Realization

LeveragePoint provides sales with the language to capture price in the field.

Sales and CustomerPricing Conversation

is Captured

PriceIncreasePackagePassed to

Sales

Price IncreaseStrategy is

Created

How effectively are we capturing the price increase?

Where are we experiencing resistance? Why?

How do we do it better in the future?

Finance

Sales Customer


Time Is of The Essence

Pricing for sustainable growth requires:

Value-based, not cost-based

Profit-driven, not share-driven

Proactive, not reactive

Pricing technology enables growth


Thanks for watching!

www.leveragepoint.com

[email protected]

Jay Manson

(781) 727 – 5977

Dealing With Rising Commodity Prices with Tom Nagle

Economy & Finance

Transcript of Dealing With Rising Commodity Prices with Tom Nagle