Five Strategies for Raising Prices in Wholesale
Wholesale is also affected by global crises such as the Ukraine conflict and the Corona pandemic. On top of that, inflation is on the rise. Manufacturers’ and suppliers’ prices are rising. What strategies are available to raise prices in turn?
While private consumers are trembling over how high their next gas bill will be or by what factor their monthly gas bill will increase, many companies are already facing rising energy costs.
Industries that have to use a lot of energy to produce their products, such as the chemical and mechanical engineering industries, are being hit particularly hard. In addition to the increased energy costs, there are higher raw material prices and supply bottlenecks for primary products.
Wholesale Price Increase Figures
Wholesalers are not exempt from this either. The higher energy costs and costs for raw materials, which manufacturers and suppliers charge them in the form of rising purchase prices, are passed on to their customers. The Federal Statistical Office reports that wholesale selling prices in June 2022 were 21.2 per cent higher than in June 2021.
For the individual sectors in wholesale trade, the price increase compared to the previous year is as follows:
● Wholesale petroleum products: +62.0 per cent
● Wholesale of solid fuels: +80.9 per cent
● Wholesale of cereals, raw tobacco, seeds and animal feed: +38.6 per cent
Wholesale of chemical products: +42.0 per cent
● Wholesale of milk, milk products, eggs, edible oils and fats: +36.4 per cent.
But given this tricky situation, how do wholesalers pass on price increases to their customers? After all, every price increase carries the risk that customers will cancel contracts or leave the company, and the excellent reputation will suffer not inconsiderable damage.
Five Strategies for Raising Prices in Wholesale
Various strategies are available to wholesalers to increase prices and best avoid the risks mentioned above of damage to the company’s image as well as the negative economic effects associated with a price increase.
1. Specify Price Increase by Product.
On the one hand, this strategy is based on the realization that it is much more challenging to implement a price increase based on the watering-can principle than one based on specific products or services. On the other hand, products and services that are very popular with customers and offer them a correspondingly high level of added value lend themselves to a price increase. There is a certain probability that they will continue to demand them anyway. It is, therefore, possible here that the economic consequences of a price increase will tend to have less of a negative impact if any at all.
2. Differentiate Price Increases by Customer
Wholesalers can also pass on price increases from their manufacturers and suppliers by limiting them to individual customer groups or customer segments. Customer segmentation involves dividing customers into individual segments based on various factors. That gives wholesalers homogeneous customer segments whose members all have similar characteristics.
The background to customer segmentation is knowledge of which customers have which needs. This knowledge, in turn, is essential for sales, which can use to take suitable measures for a customer segment. Customer segmentation can help differentiate the price increase potential and its probability of implementation concerning specific customers because not all customers have the same needs.
3. Differentiate Price Increase According to Sales Channel.
The same applies to sales channels (e.g., digital marketplaces, online platforms or online stores) as to customer segmentation: A price increase is not accepted equally in every channel, or the probability of successful price enforcement is not the same everywhere.
The background to this approach to enforcing price increases is that price structures in multi-channel sales have not usually evolved systematically. They have grown historically, and each sales channel usually serves a mix of different target groups. Now it often happens that other sales channels work with different prices. Here, too, wholesalers should identify which sales channels are most likely to implement a price increase.
4. Set Prices Specifically for each Customer and Product
Wholesalers, in particular, have a large number of different products. It can, therefore, very quickly become a major, if not insoluble, challenge to differentiate prices by product or customer. Today, there are sophisticated and highly developed digital solutions for this case, such as software for predictive sales analytics. It supports wholesalers with artificial intelligence in price analysis and customer classification.
For example, the results of a price analysis can lead to optimization or adjustment of prices. Once companies have selected the products to be analyzed, they can evaluate specific purchasing behaviour in detail at the customer level.
5. Justify price increase sufficiently well
Investing some time in developing a powerful justification for price increases can be worthwhile. Ultimately, the aim is to make the price increase palatable to customers using professional communication and convince them to continue to demand the products and services.
Wholesalers can achieve that if they do not focus unilaterally on increasing their costs or their cost pressure (tenor: “Due to price increases by our manufacturers, we see ourselves forced to increase our prices …”). It is much more a matter of arguing with the individual added value or the unique selling proposition (USP) of products and services, even in the case of a price increase, thus highlighting customer benefits.
Raising Prices: 5 Strategies for Wholesalers – Conclusion
Crises on a global scale, such as the current war in Ukraine or the Corona pandemic, are also hitting wholesalers hard. The consequences are price increases, especially for (preliminary) products, delivery and transport costs, and raw material prices. The aim is to compensate for these price increases or cushion them through suitable measures. The objective is always to achieve the highest possible realization rate for price increases to take sufficient countermeasures and maintain certain margins.