Brainstorming price increase impact on customer loyalty

brainstorming
New answer on Jun 27, 2021
4 Answers
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Anonymous A asked on Jun 17, 2021

If you are a steel manufacturer looking to increase price of steel for a critical client (assume the client still buys from you), what are some things you can do to smooth over the relationship? You could potentially offer to lock in these prices for longer, what else? Doesn't seem like steel manufacturers have any add-on services to offer (like maintenance, warranty etc) so what else could you do?

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Ian
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replied on Jun 17, 2021
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Hi there,

You have a few options:

  • Explain reasoning for increased prices (i.e. increased outputs, carbon taxing, etc.) - reassure it is not for higher margins but to maintain margins...highlight this is out of the company's control
  • Highlight the quality/value of your steel
  • Include "add-ons" for the first year
  • Flag added value/changes (i.e. higher quality, faster delivery to support Just-In-Time operations, etc)
  • Promise no further price increases for x period of time
  • Refer to competitors' prices and/or competitors' price increases
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Adi
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replied on Jun 18, 2021
Accenture, Deloitte | Precision Case Prep | Experienced Interviewer & Career Coach | 15 years professional experience

Plenty of ideas:

  • Show that price increase is due to investment to improve x, y , z
  • What better service & experience are they getting with increased price
  • Give choices on payment & payment terms
  • Benchmark to show that new pricing is in line with industry standards; give access to an independent report
  • Give the option to cancel contract & walk away should they not be happy
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Francesco
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replied on Jun 18, 2021
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Hi there,

Adi and Ian provided already a great list of options.

Increasing the quality perception is probably the most important action you may take. If you don’t make the customer sure that the price reflects the value, they won’t stick to the product very long.

If the product is a pure commodity (ie the steel is exactly the same as the one of competitors), instead of trying to do so with the product itself you may want to improve the service provided. Possible examples include:

  • Faster delivery
  • Personalized support
  • Free customization for specific needs
  • Full refund in case of any defects

Best,

Francesco

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Henning
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replied on Jun 27, 2021
Bain | passed >15 MBB interviews as a candidate

Steel is a commodity, so difficult to raise prices (and doing so to maintain margins like Ian mentioned doesn't help - customers will still buy the cheapest).

But there are still different ways to differentiate in steel:

  • Delivery commitments for specific customers (e.g. guaranteed delivery within xx days after order, of course that would need to be planned into inventory management, etc.)
  • Specific requirements (e.g. steel plates of specific thickness - can be a differentiator, e.g. for increasing tower and foundation wall thickness of offshore wind farms, which not all suppliers can offer)
  • Green steel (production using hydrogen instead of natural gas - the industry expects a big supply constraint in this market, especially in Europe where customers are increasingly demanding this in tendersr)
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Ian gave the best answer

Ian

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