Inflation, Covid, container shortages, Brexit, raw material price hikes… For some very complex and intricate reasons, UK manufacturers (and some further afield) are being forced to increase prices more often than usual. Latin Americans are very used to price increases locally, but internationally is something different. How do you go about communicating price increases without damaging the relationship with your regional clients and distributors, and without losing significant business?
Here are a few things to take into account.
Face the fact that Latin Americans will not be happy. At all.
Latin America knows very well about price increases. We know prices go up since we are at nursery. A 12 year-old in Argentina, Uruguay or Brazil has probably heard more about inflation than you have in your lifetime. We expect prices to go up.
Having said that, we don’t like it. They bring back bad memories, they complicate matters. In particular, we don’t like price hikes in foreign currency (US dollars, Euros, Sterling) because in real terms, compared to our weak currencies, they are massive. People will get upset, very upset. It’s cultural, too, we are very expressive and emotions run high in business. You can go on about Covid, Brexit and container shortages and your local partner will understand it but in the end, it goes back to you, it’s Peter that put prices up, so we will be very angry at Peter.
We expect Pedro from Uruguay and Mariana from Argentina to put prices up, but not nice Peter from charming England. If Peter puts prices up, he’s one of us, so expect a familiar and angry reaction. We get emotional. You’ll have to deal with that, it’s part of doing business in a different culture. How do you deal with it? See the next two tips.
Be as clear as you can.
Again, a lot of the time, business in Latin America is not based in linear anglo-style reasoning, but on relationships, history, feelings, trust. Having said that, it’s important to:
– list the reasons behind these price increases – give concrete examples especially when you discuss this on a call (“aluminium prices have gone up x%…”, “we have experienced a x% increase in the cost of tooling/spare parts/x raw material… over the last x months…”)
– mention that you have done everything you could to contain price increases (“although we have been experiencing this for x months, we have absorbed all those cost increases but we have reached a point now…”)
– give a clear new price list that contemplates local demand – do you need to put all prices up by the same amount for Latin America? Looking at past and forecast sales, can you work out a regional or country-by-country list to take these variations into account? Is it fair to increase prices in Chile or Peru, with weak and volatile currencies (and distributors that face these risks), the same as you increase them in Germany or Japan?
– illustrate how rare price increases are (“…in the last 10 years, we have only increased prices annually, and only between 2-4%, hence this 10% increase is very unusual for us, too…”)
– if you are expecting further increases, give an idea of timing and magnitude
– be very clear if you think these price increases can be reversed if the global situation changes – Latin Americans will never assume that prices can decrease one day
– state if there is any room for negotiation for particular contracts or sales – if your distributor was working on a large tender, for example, can you keep the old prices? If they had been working for a year or two on securing a new client and they are only a few weeks away from their first order, do you really need to put them off after all that work?
Just two comments here:
– we are not saying you need to explain your costings/pricing in detail – as the manufacturer, that can be reserved information and you are not begging for forgivance here, the point is to build trust and lose as little business as possible
– all the above should be done in the most succinct and clear manner as possible, preferably in Spanish/Portuguese – we have seen many price communications in English that are impossible for Latin Americans to understand even if they have a good command of English, they just don’t make sense to us.
“Dar la cara”, we call it in Spanish. Basically, even though the increase in prices is not your fault (and everyone here understands that), it’s you who’s putting them up, so you’ll have to sit there in front of your client/distributor and explain it. You’re expected to do that (we do it for our clients). You can’t just email bad news, hide behind a screen and expect it all to go away. It won’t.
Our strong recommendation is to schedule a call (video call, that is) with your local partners and talk them through this. They need to see you are as upset as they are. The chances of misunderstandings are a lot lower with this call first, and you will have built precious trust and, very importantly, they will want to continue doing business with you – people buy from people they like, after all. Then, when the email comes with the new price list, it will be a lot easier to swallow.
Negotiate as much as you can.
If you absolutely need to put prices up, and we totally understand why, can you for example improve payments terms for your distributor? Can you give them any marketing/merchandising support? Can you negotiate one-off discounts for certain tenders, clients or volumes? Remember it’s not just about what you actually offer, it’s about the gesture, being seen to be willing to negotiate, concede, discuss. We like that a lot.
Adjust your expectations.
You’ll need to adjust your expectations. For example, your distributors’ sales targets will have to be lowered, your sales forecasts for the region will be affected, and your market segmentation will change, depending on how long you can avoid significant increases and how long the higher prices apply for.
If you have no choice but to put prices up significantly, even if you do all the above, and more, you will realise that you are likely, or very likely depending on your specific situation, to lose business in this very price-sensitive region. There’s so much you can do about it. So damage control is something you need to think of. If you lose business, try to at least channel that loss, control it and minimise it, and lay the foundations of the recovery you’ll need after the current crisis is over.
Just one more thing…
We have emphasised on this blog again and again, at every webinar and seminar, and across all our social media channels, just how important long-term relationships are in Latin America and today we see a business-critical real-life example of exactly why: if you have been in this region 5, 10, 20 or more years, not only you’re likely to have less price-sensitive (so more loyal) customers, but both your end clients and your distributors will absolutely know that this price increase is unusual. You can’t build that trust overnight. You can’t expect a brand new distributor to take it as much as an established one will do. This crisis will go away, what should remain are stronger relationships that can continue working strongly for many years to come.