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Topic: Strategy

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Reasons For Price Increase

Posted by younghwa on 25 Points
Dear,
I am working at a furniture factory. One of our major client will come to discuss the reasons for price increase. I am a green hand and I am a little nervous. I don't know how to convince our customer to accept the increase.

  • Posted on Accepted
    Explain, and also demonstrate by showing him paperwork, if available, how and where your cost of raw materials has increased.
  • Posted by younghwa on Author
    Thanks for your quick response. This is my first time to raise questions. But what I want to know now is that what reasons I can include for the price up? Raw material' labour increase, finishing coat? And anything else?
  • Posted by Peter (henna gaijin) on Accepted
    There are 2 sides to a price increase. The first is that your costs have gone up, which you can explain, but often you want to not give full details on.

    The second side is whether the price increase can stick, and that is based on what other companies in the industry are doing. if everyone has seen these same price increases, then the customer would find similar prices if they went to competitors. But if you are the only one to increase prices, then you risk the customer going to buy the products from a competitor.
  • Posted by mgoodman on Accepted
    How about the truth? WHY did prices go up? If it's just that you're getting greedy and want higher margins, then that's a problem ... especially if you're in a competitive market.

    But if you raised prices to recover some of your raw material increases (for example), then you'll probably be seeing your customers do the same. Share that information with your customer.

    Another thought: Maybe the customer would do something for you in return for a delay in the price increase. If they'd buy (and pay for) a 3 month supply, would you hold the current price for that period of time? Etc.
  • Posted by matthewmnex on Accepted
    My Advise.

    never never never show the client reasons.

    The client should be buying from you because he believes in your product, service, quality, design, all of these. Price should not be the only reason he is buying,

    Just tell him that as he well knows, inflationary pressures make it impossible for you to maintain the same quility of finishing and materials and sservice at the old prices.

    If he wants the quality you offer - then no choice he must accept the increase.

    Tell him that you can give him the products at a cheaper price if you cut some corners and use cheaper finishes and cheaper labour but that because of your core values, you WILL NOT DO THAT.

    Get the discussion away from price and make it all about quality.

    NEVER EVER SHOW PAPERWORK OR REAL COSTS. That would be a big mistake.

    Also - NEVER EVER TRY TO JUSTIFY how you run and manage your business. That is your business.

    Don't be afraid to be strong - the client will appreciate it more. If you start justifying and making excuses, he will not respect you and he knows he can beat you down and eventually you will cut your margins to make him happy.

    NOT good.

    Price increases are a normal part of everyday life for all of us all over the world - he has to live with it :)

    Now, having told him that you will deliver quality products and service - better make sure that you live up to that statement :-)))

    Good luck.

    Matthew
  • Posted by carrie77 on Moderator
    Hi Everyone,

    I am closing this question since there has been no activity in 10 days.

    Thanks for participating!
    Carrie (Production Editor)

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