Dealing with Rising Commodity Prices                                                  March 23, 2011                      ...
Our Presenters Today          Dr. Tom Nagle                                     Jay Manson    Senior Partner, Monitor Grou...
Dealing with Rising Commodity Prices Rising commodity prices is not a short-term phenomenon. CRB Index of 17  essential co...
We Need to Get Ahead of Rising Material Costs      Supply Chain Efficiency We are victims of our supply chain        optim...
Communication                  Our customers know it’s coming,        but are more comfortable delaying as long as possibl...
Understand and Manage Customers’ Fears and ExpectationsCauses of Resistance                        Ways to Manage   Belie...
Understand and Manage Customers’ Fears and ExpectationsCauses of Resistance                        Ways to Manage         ...
Understand and Manage Customers’ Fears and ExpectationsCauses of Resistance                        Ways to Manage   Belie...
What Keeps Us From Raising Price                No competitor wants to go first, even                 while none wants to ...
Understand and Influence Industry Competitive DynamicsCauses of Delay                              Ways to Manage    Fear...
LeveragePoint Value Management Improves Price Realization       LeveragePoint provides sales with the language to capture ...
Time Is of The EssencePricing for sustainable growth requires: Value-based, not cost-based Profit-driven, not share-driv...
Thanks for watching!                            www.leveragepoint.com                            jmanson@leveragepoint.com...
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Dealing With Rising Commodity Prices with Tom Nagle

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With raw materials prices increasing across a broad range of commodities and further inflation likely as the world economy continues to recover, maintaining margins is increasingly difficult. The higher and more frequent cost increases become, the greater the adverse effect from delays in passing them through. Still, in competitive industries, no competitor wants to take the lead in raising prices and the ire of customers.

In this 30-minute webinar, renowned pricing strategist Tom Nagle shares his perspectives on how organizations have succeeded in meeting this challenge in the past.

Published in: Economy & Finance
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Dealing With Rising Commodity Prices with Tom Nagle

  1. 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. 1 1 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  2. 2. Our Presenters Today Dr. Tom Nagle Jay Manson Senior Partner, Monitor Group VP Sales, LeveragePointLead author of the top-selling book on Value-based marketing, pricing and salespricing for two decades, The Strategy expert. Formerly at Vendavo and theand Tactics of Pricing, 5th edition 2010. Strategic Pricing Group. 2 2 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  3. 3. Dealing with Rising Commodity Prices Rising commodity prices is not a short-term phenomenon. CRB Index of 17 essential 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? 3 3 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  4. 4. We Need to Get Ahead of Rising Material Costs Supply Chain Efficiency We are victims of our supply chain optimization success HedgingCustomer building up inventories will increase demand instability and the appearance of price sensitivity We feel rising material costs sooner We want need to avoid sales dips and revenue lag 4 4 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  5. 5. Communication Our customers know it’s coming, but are more comfortable delaying as long as possible So how do we overcome their resistance and accelerate the process? 5 5 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  6. 6. Understand and Manage Customers’ Fears and ExpectationsCauses of Resistance Ways to Manage Belief that they can’t pass along  Don’t sneak up on them! Warn any increase quickly enough to of anticipated commodity cost avoid near term hit to profit increases and relationship to product or service cost Perception of “unfairness” (we  If necessary to give adequate are struggling too and you are advance notice, hedge a few not being a good partner) months in advance  If must increase without warning, Fear of becoming competitively give customers who agree disadvantaged (or hope of short immediately & contractually to term advantage) maintain volume and accept increases the ability to take in steps; “spot” customers take all at once 6 6 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  7. 7. Understand and Manage Customers’ Fears and ExpectationsCauses of Resistance Ways to Manage  Announce full price increase, but Belief that they can’t pass along then give sales reps ability to any increase quickly enough to make pre-authorized tradeoffs avoid near term hit to profit between increase and customer’s acceptance of cost- Perception of “unfairness” (we reducing behaviors are struggling too and you are – Less frequent deliveries of larger not being a good partner) orders – Lower guaranteed product specs Fear of becoming competitively that could still meet need disadvantaged (or hope of short – Electronic orders, info sharing for term advantage) demand planning  Be transparent about impact on costs. Make increase a variable surcharge tied to objective index 7 7 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  8. 8. Understand and Manage Customers’ Fears and ExpectationsCauses of Resistance Ways to Manage Belief that they can’t pass along any increase quickly enough to  NEVER negotiate away the avoid near term hit to profit ultimate increase, just the terms for getting there Perception of “unfairness” (we  Give large customers “most- are struggling too and you are favored nation” commitments not being a good partner) relative to direct competitors  Only as a last resort to save a Fear of becoming competitively “must have” customer, agree to disadvantaged (or hope of short delay timing of increase until term competitive advantage) equal quality competitors match the increase 8 8 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  9. 9. What Keeps Us From Raising Price No competitor wants to go first, even while none wants to be left behind What can you do, within the law, to ease the transition to a price level that still re-establishes competitive margins? 9 9 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  10. 10. Understand and Influence Industry Competitive DynamicsCauses of Delay Ways to Manage  Fear of losing sales to  Industry market leader (the competitors that delay following others use as their price increase reference) must lead!  Sales force unprepared to – Describe need but delay explain increase to implementing until other customers—easier to say just industry leaders have expressed similar perceptions following industry and intentions – Roll back if necessary to demonstrate that won’t happen if other large share firms not prepared to follow 10 10 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  11. 11. LeveragePoint Value Management Improves Price Realization LeveragePoint provides sales with the language to capture price in the field. Price Increase Sales and Customer Strategy is Pricing Conversation Created is Captured Price Increase Sales Customer Finance Package Passed to Sales How effectively are we capturing the price increase? Where are we experiencing resistance? Why? How do we do it better in the future? 11 11 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  12. 12. Time Is of The EssencePricing for sustainable growth requires: Value-based, not cost-based Profit-driven, not share-driven Proactive, not reactive Pricing technology enables growth 12 12 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
  13. 13. Thanks for watching! www.leveragepoint.com jmanson@leveragepoint.com Jay Manson (781) 727 – 5977 13 13 Copyright © 2011 LeveragePoint Innovations Inc. Copyright © 2011 LeveragePoint Innovations Inc.
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