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The business economy has taken a brutal beating lately. When a massive ship named the Ever Given ran aground in Egypt's Suez Canal, it had knock-on effects around the world. And as we try to head out of the pandemic, other serious supply chain issues have surfaced.

Faced with such volatility and unpredictability in the economy, company profits are getting squeezed. But what can B2B companies do about it?

When profitability suffers, the first order of business is to lower company costs. The lean process improvement model of ensuring all tasks and workflows are efficient and effective can have lasting positive effects on the bottom line.

Businesses can also consider outsourcing functions, such as IT, payroll, and even manufacturing. Your organization may never have fathomed that alternate raw material suppliers, contractors, and temp employees are capable of bringing instant skills to the workplace for less.

But cost reductions can take your business only so far. To maintain profitability, companies also need to take pricing action.

There are various approaches to raising prices, but increases must always be carefully implemented, and with an eye to the competition.

Four Ways to Strategically Raise Prices

Every pricing initiative should start with an understanding of company growth engines and the important sources of volume. Making changes that compromise those is bad business.

It's also necessary to have good tabs on market participants because competition and differential value set the boundaries for pricing. Improving the differential value of offerings actually makes it easier for customers to pay more.

At the core of business strategy is segmentation, based on a solid understanding of customers' performance needs, purchasing process, and criteria. Do they want to buy direct or through a distributor, and where are there price sensitivities?

Having that information makes it easy to determine less profitable SKUs and sell those through alternate channels such as e-business. Then you can be more aggressive with price in segments where there are no clear substitutes.

Also, value propositions must be fine-tuned for each target segment. Do the company offerings help customers reduce cost or increase revenue? Find your unique selling point and amplify it.

Beyond the broad strokes of business strategy, let's talk about the specific ways you can raise prices without sending your customers packing.

1. Get creative with pricing models

Think unique: Products, services, and parts can be classified by how unique they are to your customer.

  • Mark up custom products and parts, while keeping items such as nuts, bolts, and hoses lower-priced to avoid substitution.
  • Create "Good," "Better," and "Best" products for entry-level, target-level, and show-off products; it allows pricing flexibility.
  • Provide lower-price offerings with higher margins, such as private-label items or insourced entry-level products, which have their place in the product range.

Think bundling: Items that are usually bought together can be bundled into an assembly or dispersion that makes subsequent processing faster.

  • Parts used for routine maintenance, including consumables, lend themselves well to bundling. Imagine the convenience of a kit for gasket replacement that saves time and trips to the hardware store.
  • Bundles can be priced slightly lower than the sum of the parts, or higher if there are efficiency gains.

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Company Profits Squeezed? Here's How B2Bs Can Justify Raising Prices

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ABOUT THE AUTHOR

image of Per Ohstrom

Per Ohstrom is a CMO with Chief Outsiders, the nation's fastest growing "executive-as-a-service" company.

LinkedIn: Per Ohstrom

Twitter: @pohstrom