Dealing With Rising Commodity Prices with Tom Nagle

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.

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

Our Presenters Today

Dr. Tom Nagle Jay Manson
Senior Partner, Monitor Group VP Sales, LeveragePoint

Lead author of the top-selling book on Value-based marketing, pricing and sales
pricing for two decades, The Strategy expert. Formerly at Vendavo and the
and Tactics of Pricing, 5th edition 2010. Strategic Pricing Group.

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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?

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We Need to Get Ahead of Rising Material Costs

Supply Chain Efficiency
We are victims of our supply chain
optimization success

Hedging
Customer 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

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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?

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Understand and Manage Customers’ Fears and Expectations

Causes 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

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 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
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 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

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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?

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Understand and Influence Industry Competitive Dynamics

Causes 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

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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?

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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

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Thanks for watching!

www.leveragepoint.com
jmanson@leveragepoint.com
Jay Manson
(781) 727 – 5977

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Dealing With Rising Commodity Prices with Tom Nagle

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