The subject of price increases has been a hot one of late. The decision to leave the European Union has had a largely muted response, with things very much as they were prior to the vote. However the one area it has affected is the value of Sterling against the Dollar and Euro. It has hovered in the £1.30 bracket for a while now, dropping around 15 cents since the decision to leave.
Whilst that has been very good news for our exports industry, with foreign investment climbing too, our import costs have been affected too. And it has affected our industry too, with a number of major suppliers and manufacturers passing on price increases to their customers.
Not everyone has. Some have chosen to absorb those costs in the hopes that it could bring on new business from disgruntled customers elsewhere. And also in the hopes that Sterling might recover at some point in the medium term. But even some of those businesses are now having to succumb to price pressures and in the past couple of weeks we have seen another raft of suppliers implement price increases.
So, how do you handle a price increase? For installers and suppliers/fabricators it can be a tricky thing to navigate.
Fabricators
Being a fabricator at this moment in time is a position I do not envy. They have had to balance the effects of the vote to leave the EU and a drop in the value of Sterling, with keeping their existing customers happy despite knowing that at some point they are going to have to raise their prices. Most certainly between a rock and a hard place.
But for me, fabricators have to be honest at all times, and do all they can before passing on price increases to their installers. Personally, I think that the companies who immediately passed on quite steep prices increases, some in the range of 10-15%, went about handling this the wrong way. Many saw it as profiteering and taking advantage of an opportunity to squeeze more money out of their customer’s loyalty.
What many would have liked to have seen is their suppliers work a bit harder to perhaps cover all eventualities before the referendum, like others did, and maybe take a little bit of that price increase on the chin. It would have demonstrated a bit better their efforts to try and work with installers through what was a very dramatic few weeks in our country. However that didn’t happen.
Those who hedged before the vote were able to stave off price increases to their customers, for at least a few months, which meant their customer base was happy, and was an attractive prospect to other potential new customers who weren’t now happy with their existing suppliers.
However Sterling hasn’t recovered as much as was hoped, and we’re now seeing businesses who froze prices after the June vote, now start to raise them to cover their costs. In a way, this stops becoming a business decision and more of a PR exercise. Get it right and most will be OK with it. Get it wrong and installers won’t hesitate to say what they think of it.
Honesty is the best policy in this scenario. A letter of notification of price increases is not enough. Installers want to know a detailed rationale as to why their prices are going up. Good justification means most will just accept it. They know what is going on in the world right now and a few extra percent isn’t really going to affect things. As long as it’s only a few percent!
Some installers might try to negotiate with their suppliers, but at the moment, with Sterling price pressure, it will be a fruitless endeavor.
Installers
I’m afraid that if you’re an installer and facing a price increase, there’s very little you can do about it this time round.
Previously, price increases from suppliers will have been few and far between, and only from a single company. However this situation is very different, and factors outside the control of all companies have affected everyone. So if an installer gets notification of a price increase from their supplier, it’s not as if they can go explore the market for an alternative as everyone is pretty much in the same boat.
There are varying degrees of price increases though, which does allow some flexibility for looking around the market. For example, just as the results of the EU vote began to sink in, some suppliers were passing on quite hefty price increases, in the double digits. Yet some suppliers have implemented price increases of just a few percent. So whilst an installer is going to have to accept a price increase is happening, they can limit that rise by looking elsewhere where increases will be smaller.
If I was a small to medium size installer, I wouldn’t even bother trying to negotiate with my supplier about scrapping the increase for them. Suppliers are under immense pressure at the moment and they are highly unlikely to bend to pressure.
The one big decision for installers is how much of that increase do they pass on to home owners. Personally, I would say all of it. If you have just had an increase of 4% on your materials, that shouldn’t be enough to derail your growth plans. For all new quotes I would pass that on to home owners. Installers need to do all they can to maintain the profit margins they have worked hard to build back up after the Great Recession. To absorb them now would be a foolish gesture and only hurt the business.
Whether you’re an installer or a fabricator, price increases is a live situation and one that needs deft handling to ensure that the PR around them is handled well, and that any disruption is kept to an absolute minimum.
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