When Things Get Desperate – Consider a Price Increase

It may seem counter-intuitive to think that a company has an opportunity to increase its prices when it is in distress. Yet, we have found in many; maybe even in most cases that distressed clients have pricing power with their customers.

There are two key reasons that many distressed companies have pricing power even though they are in a weakened state. The first and primary reason is that many distressed companies simply have not defined and then put a value on their core competency. Said another way, many companies do not understand the true value of their goods and services in their marketplace. The second key reason distressed companies often have pricing power is because they have been frequently and significantly cutting prices in order to maintain volumes. These price cuts often do not produce a positive ROI, are rarely needed and are fairly easy to walk away from without negative effects on volume.

The solutions for generating maximum potential from pricing power involve doing the necessary research work to:

  • Define the core competency (or brand equity) of the company
  • Place a value on that competency in the market through competitive pricing analysis
  • Perform promotional and spending ROI analyses

More often than not, once a company completes these analyses, they learn that there is amble room and justification to introduce price increases into the market.

Two fairly recent clients examples in the consumer space generated tens of millions of dollars in new top AND bottom line results through price increases. This occurred even though both companies were in bankruptcy and in highly competitive markets. Similar results were realized for one of our OEM clients and for one of our commodity chemical industry clients.

Ensuring that you are maximizing the profit potential for your goods and services via price is always a key strategy. It is nowhere more important in a turnaround case.

If you are interested in learning how fast your company or client can benefit from a fact based assessment of price increase opportunities, do the internal analysis above or call Michael Roth Advisors for a consultation.