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When do you cave on price increases or do you?

Q. Customers in my industry do not accept price increases unless they have zero alternatives. How do we handle this?

A. I'm sure you are not the only person thinking this way, nor is your industry the only one with this issue. Probably almost every one reading this frequently hears from their customers that their prices are too high, and that the customer won't accept price increases.

Now, I'm assuming that the reason you want to increase their price is because your cost has increased. In order to maintain your margins, you have to increase the sales price to proportionately reflect the increase in your cost.

But, your customer is vocally objecting. What do you do?

First, analyze the business. If you absorb the price increase and thus decrease your margins, can you live with that? Is the business still profitable? Is the account worth the low margins? If the answer is "Yes, you can live with it", then absorb the increase, tighten your belt and try to leverage that position into more openings within the account.

Tell the customer you'll try to maintain the price, but the only way you can do that is to spread your costs over more product. He'll need to purchase something else from you to help you do that.

If the answer is "No, it is not worth maintaining the business at low or no margin", then you need to be brutally frank with the customer. Tell him you cannot continue to service him at this price. Indicate that you'll maintain the price for 30 days, and that on day 31 the price will be increased. If he would like to obtain the product from someone else, you'd appreciate him letting you know.

Then stick to your position. There are worse things than losing a piece of low margin business. If he goes elsewhere, let him. There is a great deal of power that comes to you when you show you have the ability to walk away from an unprofitable piece of business. In the long run, you, and your prices, will have more credibility.

Over time, you customer will come to view your prices as credible, and will object less frequently.

The worst thing to do is to cave in to his demands for lower prices -- to communicate a price and then retreat from it. This trains the customer that your pricing has no power or validity, and encourages him to push for lower prices every time.

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