How Sales Leaders Set Sail in the Inflationary Storm – 3 Practical Levers
Customers have never particularly enjoyed price increases from their suppliers and sales have never particularly enjoyed having to talk to their customers about it.
None-the-less, raising prices through customer dialogue has always been a fixed part of the B2B sales profession, but being successful at it has perhaps never been more critical than right now.
Inflation is at a 40-year high (WSJ). Energy prices have gone up 10x since the beginning of 2021 (WSJ). The global metal-price-index is up 20% in the same period (link) and transportation costs 79% (link).
For industrial manufacturers this is a poisonous cocktail of rising costs for wages, production input & logistics, which is especially hard given the production -and transportation heavy nature of their business, that severely damages the bottom-line if left unaddressed.
While having the right mechanisms in place to set the right prices and understand which (more profitable) parts of the product portfolio to push are important in an environment like this, for industrial manufacturers it is only half of the answer.
To reduce bottom-line damage from rising cost, sales ultimately need to go out to get the prices and guide the product mix bought through customer dialogue.
And how well sales organisations succeed with this will be dependant on how well their organisations enable them to do this in the right way.
Based on our experience working with industrial manufacturers (heavy machinery, building materials, ingredients producers etc.) on how to equip sales for price getting at the front-line, there are 3 important levers for commercial leadership to pull, to succeed with this:
- Guide sales towards the right (profitable) product mix
- Create transparency around which customers are most important to keep long term (and which are not)
- Equip sales to engage in pricing dialogue with customers, rather than one-way communication
Making sure that sales is equipped to mitigate the bottom-line impact of rising costs, is arguably the biggest commercial challenge of industrial manufacturers of 2022.
Here are 3 ways to help them do that.
1. Guide sales towards focus on the right (profitable) product mix
Sales are not only order takers, reacting to customer purchasing requests. They have the potential to influence and guide what customers buy and in times of rising cost they need to guide customers towards the parts of the product portfolio where profitability is impacted less (because cost has not gone up as much for their specific materials, production & logistics).
Take the example of a 2.2bn DKK revenue Danish producer of measuring equipment for the agricultural industry that could see that material cost for some of their premium products were increasing much more than for functioning substitutes in the standard range and that proactively selling the latter would not only mean higher profit for the company but also less of a price increase required for their customers.
By communicating the changing profitability of the products in their portfolio to the sales organisation and guiding them towards selling products less impacted by cost increases, they were able to avoid profit margin erosion and reducing price increases towards their customers.
3 actions by sales leadership to guide sales towards focus on the right product mix, in times of rising cost.
- High frequency updates from leadership on changes in profitability of the products they sell, as a result of increasing costs and guidance on which products to increase/reduce focus on
- Increase sales manager focus on product-mix in regular pipeline management meetings with sales teams.
- Use data to identify customers with current product mix that could benefit from from changing, to reduce impact of rising cost, and activate responsible sales reps to initiate dialogue with these.
For the commercial leadership team this is not only important for sales but also for marketing and what they focus their demand generation activities towards. They too need to focus their activities towards more profitable and less cost increase exposed parts of the product mix, in line with guidance to front-line sales.
2. Create transparency around which customers are most important to keep long term (and which are not)
For sales all customers are important, but some are more important than others to ensure that the company comes out of price increases, not only with the bottom-line intact but the top-line and possibilities for growth as well.
Because no customer is happy about price increases from their vendors it is important for sales to have a clear picture of which customers it is most important that we make less unhappy, and which we are okay to risk losing as a result of increased prices (and potentially also worsened delivery terms due to supply chain issues happening at the same time).
Take the example of a global building material manufacturer with +50k customers in the account portfolio for one of their regions, that was experiencing sales costs, direct discounts (price reductions) and indirect discounts (additional services) increasing without similar effects on the top-line.
The problem was that the salesforce lacked data and clear guidance on which of the 50k accounts were more important to invest in (through time allocation, discounts, services), and which were less.
By combining internal company data with 3rd party data and implementing an algorithm to convert data into salesforce guidance customer importance, with associated guidelines for investing time, price & services, the company was able to reverse the trend of increasing sales cost and lowered profitability.
This same mechanism is now used to identify accounts where price increases are not up for discussion (lower importance accounts) and accounts where it is essential to engage in dialogue around price increases with more flexibility (high importance accounts)
3 actions by sales leadership to create transparency around customer importance to guide price getting actions at the front-line.
- Make your accounts segmentation model actionable by sales, so accounts data is automatically converted into guidance for front-line sales on which accounts to prioritise
- Strengthen your segmentation service (algorithm converting data into guidance), with 3rd party data to make recommendations more accurate
- Create clear guidelines for sales on how to allocate time, price & discounts (direct -and indirect) to accounts of different importance and follow up on how front-line sales is acting against these guidelines on weekly/monthly performance review meetings.
Although we are in unusual times right now, there will come a time again where it is business as usual. When we get there, it is key that the most important customer relationships are intact.
3. Equip sales to engage in pricing dialogue with customers, rather than one-way communication
No customers like talking price increases with their vendors, but neither do the salespeople that have to have the conversations.
Salespeople who are trained to sell on value have to suddenly go out and get higher prices to cover rising cost, without any extra customer benefits in the bag. Essentially, pass on cost problem (wholly or partly) and create a new problem for someone else.
Because vendor price increases create a new problem for the customer (they now have to figure out how to reduce the impact of rising cost on their bottom-line), it also creates an opportunity for sales to demonstrate value by helping them solve this problem.
Take the example of the measuring equipment manufacturer for the agricultural industry mentioned in the first part of the article, who, based on experience from operations in high inflation market Argentina, had learned to use price-increase environments as a source of competitive advantage.
By sharing expectations for price developments of their products, based on expected changes in production cost, openly and well in advance, they were able to engage in a proactive dialogue with the customer around the changes the customer could/should make to mitigate the potential impact of these.
They became a trusted advisor for the customer on how to successfully navigate the inflationary storm by turning a negative situation (vendor price increases) into a competitive advantage (ability to advice customers on how to mitigate impact of these).
What is important to remember in the current situation is that cost and prices are going up for selling organisations across the board. This means that the relative competitive advantage will be created by those who manage to raise prices while adding the most value to the customers in the process.
This is best done through customer dialogue over one-way communication
3 actions by sales leadership to equip front-line sales to engage in value adding price dialogue with customers.
- Equip sales with understanding of why prices are increasing (what is driving this) and what these price increases will likely mean for customers
- Train salespeople to manage price increase dialogues in a way that helps customers get clarity on potential mitigating actions to take before price increases go into effect.
- Share expectations for price developments openly with customers in good time, to help them make changes required to protect their own bottom-line.
Inflation storms come and go, but how you helped your customers through them will be remembered
Most challenges can be flipped around and seen from an opportunity perspective. Increasing cost and prices are no exception.
While engaging in price increase dialogue with customers, without bringing any additional value in the form of product or service improvements, is a challenging task, those who do it successfully have an opportunity to strengthen long term customer relationships by helping them weather the storm.
Sales leadership’s job is to make sure front-line sales is enabled & equipped to do so.
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