Consumer goods companies are facing a number of pricing pressures as we see a surge in costs for things like ingredients, shipping and freight. As a result, margins are being eroded and commercial teams in FMCG have to find a way to overcome this challenge. In order to grow and protect profits, finance, RGM, sales, marketing and supply teams must collaborate to implement a strategy.
There are many things that can be done to mitigate the effects of the rising cost of goods, check out our webinar replay Using RGM to combat inflation to find out more.
Out of these strategies, implementing a cost price increase (CPI) is one of the most effective.
First, do the groundwork and understand the revenue management levers you need to pull to create a convincing narrative. Get to a place where you’ve gathered your evidence, aggregated the insights, and you understand the incremental changes you need to make in your pricing portfolio.
What next? Now, it’s time to negotiate and sell-in the changes to your customers.
But how do you do this in the most effective way? The goal here is to come to an agreement that benefits both you and each of your customers across your whole portfolio of products.
Do your homework: Develop customer insight
As Deepak Malhotra said in ‘The Peacemaker’s code’: ‘knowledge is power when it comes to negotiating’ – few people stop to truly find out information about who they are speaking with. Do you know their pains, struggles and KPI’s? It’s important to speak their language, then you can propose strategies from their point of view.
Do your research into how your changes might genuinely benefit the customer, and expand on the joint value you will create together.
Decide how to implement the change
This step is most often rushed by commercial teams, when in-fact it requires a lot of work to plan properly. This is your change communication plan. First think timelines, consider how you will phase out the negotiations, and create a timelines for how long the communications will take. Second think of the order, prioritise the most influential customers, and decide who you will meet with first depending on the biggest size of prize. Think about how this supports your overall strategy.
Develop your story
Now, it’s time to develop the narrative you’ll walk your customers through to negotiate the change. There’s no such thing as overthinking this, prepare this carefully and incorporate feedback from multiple teams to refine your argument. Once you have this straight, you’ll feel confident and prepared to negotiate for a win-win outcome.
- Create a sense of urgency – Set the scene by creating a burning platform. State how the consumer goods environment is constantly evolving, and if businesses fail to evolve with it they will get left behind.
- Support the argument with data – Map our your story first, then pull in the right teams and the relevant insights that will support that story. Use statistics from market trends, category trends, and channel trends.
- Provide an overview of the solution – Your customers will now be thinking ‘So what?’ – so here’s where you state what lies at the other end of the change. Alongside the features and the benefits, incorporate your business values, your partnership, joint KPI’s and joint value creation. Try and show your solution in a way that they can resonate with. Really stress how you can both benefit from this and think win-win.
- Summarise – Obvious but so often overlooked, here’s where you recap your presentation. The more clarity & structure, the less room for ambiguity and misunderstanding.
