Price Changes and Inventory Shortages Don’t Need to be Difficult Conversations - Modern Distribution Management

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Price Changes and Inventory Shortages Don’t Need to be Difficult Conversations

Barrett Thompson discusses how sellers can maintain positive relationships with customers despite a harsh economic environment.
Proactive versus Reactive on a cork notice board

These are grueling days for sales teams. Wave after wave of vicious economic changes — inflation, supply chain issues, a potential recession — forces them to approach their customers with yet another round of bad news about late orders, product outages or price changes.

That scenario has played out so often over the last two years that sellers are concerned they risk losing even their most loyal customers if they make a single misstep in customer relationship management. Where a moderate 3% cost increase used to be an annual expectation, imagine what it’s like to be a seller who has brought double-digit changes to customers five times in the past 24 months.

Customer relationship management has always been part of the job, but the pressure and anxiety that sales teams feel right now leave them feeling worn out and battered. The next piece of bad news they tell their customers might be the last straw.

And while we can’t avoid price changes, what if sellers embraced them as a chance to shine instead of dreading their arrival? Are there ways to embrace the news and turn it into a path to deeper and more long-lasting relationships with customers? Here are three conversations — two aimed at customers and one at your internal team — that can flip the script and create an opportunity to differentiate your company.

Product Substitutions: Anticipating What’s Coming

“Bad news: Your order is going to be delayed by six weeks because of supply chain disruptions, and I have to raise the price by 5%.” That’s not a conversation starter any seller wants to have. Instead, what if the call opened with, “I’m looking out over the next few months, and I’m seeing signs that a product you depend on will likely be difficult to get. I’d like to talk with you now, in advance of any challenges, about some product substitutes that are functionally equivalent.”

Now the conversation has flipped from reactive to proactive, and the sales rep is taking risks out of the supply chain in advance so they can serve the customer without disruptions.

Reps can take the conversation a step further and offer to set up product substitution preferences in the system so that if one product runs short, the replacement will be shipped immediately to avoid any outages. Different products might come from another supplier but meet the exact specifications, or maybe it’s a private label rather than a national brand. Either way, having substitute products lined up builds a positive relationship between seller and buyer and makes customers feel like they’re being looked out for.

Quantity Commitments: Becoming a Top-Tier Supplier

Many B2B businesses struggle with enforcing the quantity commitments customers make on annual contracts. When they signed the agreement, the customer negotiated a lower price in exchange for a commitment to buy 1,000 units over the course of the contract. But instead of 80 units per month, the customer only orders 30, which leads to an uncomfortable conversation.

In a supply-constrained situation, sellers may actually turn down a customer who is willing to place an order today because they must set aside their limited supply for a contracted customer who is expected to buy later. But that arrangement only works if that contracted customer holds up its side of the bargain. If the customer doesn’t, the seller gets stung. Here again, an alternate angle turns a negative engagement into a positive one.

Rather than “you promised me this quantity in exchange for this price and if you don’t increase your quantity then I must increase your price,” the sales representative could frame it as:  “I’ve been setting aside inventory for you, working hard to be sure that you get your 80 units every month because I know you depend on it. I want to be your first-tier supplier, even in this constrained environment. I want to give this limited inventory to my best customers, so please be my best customer by keeping your quantity commitment.”

By framing the relationship this way, sellers even the playing field. It’s not a sign of weakness to say, “maybe we should think about that product differently, and I may not be your best supplier for that.” Sellers want to be the prominent supplier for those necessary products and tell customers that if they’re not meeting commitments, other customers are waiting to receive those products.

Scorecard: Do You Know Who Your Most Valuable Customer Is?

Along with those two customer-facing conversations, there’s also an essential internal conversation that many B2B companies aren’t having right now: Who is our most valuable customer? When products are in short supply, who do we take units away from to give them to someone else?

Intelligent allocation of finite inventory to your most valuable customers is a good business strategy, but too often, companies don’t have an objective way of determining the value of an individual customer. Maybe it’s the one who ordered the most volume over the past year, or who is giving us 100% share-of-wallet, or the one whose order-size and frequency is good for us. It’s likely that individual sellers each have their own subjective view of what a valuable customer looks like, and that can be a problem.

A better approach is to create a customer scorecard that determines the overall health of a customer relationship. Based on consistent metrics, a scorecard can provide sales teams instant access to who is genuinely a good customer versus who might be a big name or is always top-of-mind in a category, but isn’t really as valuable as others in your portfolio.

The Final Word

Constrained inventory, volatile prices and supply-chain surprises don’t always have to lead to negative interactions that damage customer relationships and reduce the sales team’s morale. Proactive approaches that reframe these negative conversations, combined with an objective framework for assessing customers, can empower sellers and keep their companies in good standing with buyers.

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