The Price Increase Switching Game

We've all had to deal with price increases in one form or another. Similarly, many of us have been faced with a belligerent customer who not only is unwilling to accept your price increase, but also threatens to switch to your number one competitor. When this happens, we're often left with the feeling that our career is on the brink of imploding. But, don't panic! Take a deep breath and relax! It's not as bad as you may initially think.

In talking with a variety of salespeople, professional buyers, and purchasing departments over the years, the reality is that when a customer is presented with a price increase, they will only change to a competitor about 10% of the time. The reason is simple: the cost of switching to a new supplier is too great. When a customer threatens to make the move, rarely have they taken the time to think through what they're really saying. Their goal is to get the weak-kneed salesperson to cave in and give them a discount, and many of them are successful in securing on-the-spot price reductions just because of the forcefulness of their veiled warning of switching.

When you are presented with the threat of a customer moving to another supplier because of a price increase, focus in on the cost of the conversion instead of allowing yourself to panic. Remember, the process is never as easy as they think it's going to be. Start by looking at what they will have to go through to set up and to start receiving from a new vendor. Now, take this and multiply it by four. The reality is that the customer is not just setting up a new vendor, but also phasing out an old one in addition to dealing with the wide-range of conversion issues that will inevitably arise.

To better help you understand the risk involved in actually making the change, think for a moment about the hassle you go through when you try to alter a flight on the same airline or your cell phone plan even if you stay with the same carrier. Similarly, consider what is necessary to adjust your automobile insurance or to reschedule medical tests. With each of these same examples, think of the added work you would go through if you were not just changing plans, but also changing companies. Because of the significant amount required, you would probably think twice about making a switch.

Now put yourself in the shoes of a business and think for a moment about the work that would be required for them to change to another supplier. It's easy for a business customer to say they're going to drop you and go with someone else, but keep in mind that at that point, it's only talk. Threatening you is not costing them anything. Carrying it out actually will. The decision to switch is not just about the absolute cost. On nearly every occasion, it takes time to make a switch, thus carrying an added element of risk.

The next time you are warned of a potential switch from a customer, be proactive and prepared. Do your homework. Research what it would take for them to actually make the change to a new vendor. After you've discovered the cost of the conversion, figure out how long it would take for your customer to get a payback, let alone a return on their investment. In most cases, it will be hard for a customer to realize any type of a return just from switching because of a price variance. Even if the customer could achieve a return on investment, could they guarantee the other company's pricing structure wouldn't change? Could the other supplier guarantee the same level of service you and your company provide? Could the other company provide the same level of sales leadership that you bring to them?

The vast majority of the time, the threat of a belligerent customer to change suppliers because of price increase dies quickly when they truly stop to consider the cost of making the switch. Once the customer realizes that there is more time, effort, and money at stake than they have considered, the change will definitely be less appealing. By doing your homework ahead of time, you can avert a problem situation by showing the customer it is not worth it.