Price increases in an inflationary market

The current pressures of inflation are real. Consumers face these pressures when they go the grocery store and realize their basket of groceries is 5%, 10%, or even 20% more expensive than it was just a few weeks ago. Manufacturers feel it when they realize that the cost of commodities, labour, and transportation are all going up at unprecedented rates, eating into their margins. Retailers too are feeling the pressure, as numerous financial reports over the last months have indicated. Shopper purchase patterns are changing, with consumers opting out of buying certain brands they’ve now classified as “wants and not needs”. The result is that no one is satisfied, and the situation is likely to get worse before it gets better.

I spend my time working with CPG companies, helping them through their strategic negotiation challenges. Taking price has been on the top of the list for many of our clients over the last 12 - 18 months, with many of them having to endure multiple rounds of protracted negotiations, in order to recoup their costs and maintain a healthy business for today, and one that is set up for the future.

What can CPG companies to do to adapt to the new inflationary normal? How do they ensure that consumers continue to put their products into the shopping cart?

To be effective, CPG organizations need to ensure they are planning with a holistic mindset, have internal alignment, and are laser focused on the shopper and the category. Planning with a holistic mindset will help drive strategic business initiatives, ensuring they are appropriately sequenced and happening at the right time, and executed in a way that is most advantageous. Businesses often get caught up the in the day-to-day challenges and don’t allow enough time for strategic discussions and thinking that will drive the greatest impact to their performance.

Abraham Lincoln was quoted as saying, “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” The axe is a strength multiplier in this case, just as planning is in negotiations. Setting time aside from the day-to-day challenge, in order to plan and focus on the medium and long-term will be critical in ensuring success today and into the future.

Internal alignment is, in my experience, the number one inhibitor to a successful negotiation. The difference between outcomes that are good and great is the level of internal alignment that exists in the organization. This internal alignment will be tested by the counterparty. The organization’s level of readiness in that moment will determine how effective an outcome they are able to achieve. Before going into a negotiation, it’s critical to be aligned on the internal and the external “why” behind the initiative, noting that they don’t always have to be the same. Understand the rules of engagement: what are the guardrails of the engagement, and what is or isn’t on the table as part of the negotiation? Lastly, it’s critical that the organization is fully aligned on the consequences they are willing impose on their counterparty in a situation where there isn’t compliance to the terms, and that the organization is willing to hold hands and live with those consequences.

Being shopper and category-centric is the last critical piece of the puzzle. Inflation has meant that consumer willingness to pay will be tested. Companies that put the shopper first and prioritize quality, exciting innovation, and consumer benefits, will continue to grow and win.

Sun Tzu wrote in The Art of War, “Every battle is won before it’s ever fought.” The same is true in negotiations. Outcomes are decided before we get to the negotiation table. Planning with a holistic mindset, internal alignment and being shopper and category-centric will go a long way in ensuring that you are walking away from the negotiation table achieving all of your objectives.