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In: Operations Management

Your company has just announced a 7-percent price increase on your entire product line and you...

Your company has just announced a 7-percent price increase on your entire product line and you are meeting with your most important customer. She announces that your competitor has already been to see her and will not raise prices for at least 24 months. What do you do to keep the customer?

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Expert Solution

Your company has just announced a 7-percent price increase on your entire product line and you are meeting with your most important customer. She announces that your competitor has already been to see her and will not raise prices for at least 24 months. What do you do to keep the customer?

Many a times a change in the industry you operate, compels you to increase your price as the price of the raw material increases. However, the good news is most customers do not expect the prices to remain the same throughout. But if a competitor does not change the prices there is a potential risk of customer churn, thus such situations need to be dealt with in a tactful manner.

It is important to communicate that a company only exists as long as it is making profits by delivering a quality product or service. The essence of any price rise is the compensation offered through an increase in quality and service standards. Prices raises are common and are often accepted as long as they are well thought and are not just gimmicks to increase profitability.

Such instances also offer opportunities to increase the company's selling potential. If there is a dynamic change in the market, you should be able to explain how it would affect the entire industry and all competitors alike. The emphasis on increase in service and quality can work both ways here, if you enjoy a reputation of offering the desired quality, the issue of price rise can be countered by mentioning that increase as a necessary action in order to serve the customers with the same quality. If you have the customer just on the basis of price leadership, then extra emphasis needs to be given on how the raise will help your company in providing their customers with an improved quality and service.

If the customer is persistent on comparing with a competitor of yours, then you should be ready with calculations and illustration that justify the price rise. This should be dealt in an empathetic manner, but you should be firm when conveying the message of the price rise. Try and explain about other costs which your company has had to cut down in order to not overburden the customer along with maintaining the desired quality. Having knowledge of the fact that the customer does not necessarily change the vendor due to an increase in price is absolutely vital as, moving to a competitor is generally a tiresome and time-consuming task, plus there is always the uncertainty of quality being compromised.


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