If the Price is Right: Inside Elmer's 2008 Price Increase

Current market conditions like Chinese tax reforms, currency valuation increases and fuel cost increases for both internationally and domestically sourced products are prompting consumer goods companies to reevaluate their pricing strategies in 2008. Additionally, the overall changes in the global economic environment are significantly decreasing the time that suppliers will honor prices. In 2008, Elmer's Products Inc. -- the manufacturer of a variety of well-known adhesives, as well as arts and crafts products --successfully completed a 2008 price increase to offset potential losses caused by the aforementioned market conditions. Here, Elmer's Sales Operations Manager Andrew Kingery provides CGT with the details on how Elmer's tweaked the process for its most successful and targeted price increase to date.

How did the process for this most recent price increase differ from Elmer's price increases of the past?
Kingery: The most recent increase differed from the previous price increase in three ways. First, price increases were based on increases at the component level instead of using a general increase for a category.

Second, we worked harder with our vendors to redesign existing processes and products to minimize the impact of the cost increase we gave to the retailers. In some cases, we even replaced vendors. Implementing cost increases only on the products containing components experiencing increases is proof to our customers that we were working hard for them in the process.

Finally, we assigned an owner for the price increase implementation. We had one person on the team whose job was wholly devoted to ensuring the sales team and customer service had everything they needed for a successful price change at the retailer. Fortunately for us, he's still on the team.

How did Elmer's determine which products would be subject to an increase?
Kingery: We determined the products subject to an increase by analyzing our supply chain costs and the market at retail. We tried to pass along increases where we were experiencing cost increases, but only if we felt consumer demand would not be adversely affected.

What role did technology play in implementing price increases?
Kingery: The ability to analyze existing pricing across customers, classes of trade and products was critical to our success. Additionally, the ability to show price changes by item for each customer based on their previous 12 months of sales activity was fundamental to our success in executing the price increase at each one of our customers. We provided reports for each customer to allow buyers to see the percentage change by item for their entire portfolio.

How did your retailers react to the price increase?
Kingery: Retailers were very receptive to our price increases, but not all of that was due to our efforts. For example, we weren't the first manufacturer in our categories to go out with price increases, and the industry was already experiencing upward cost pressures "across the board" due to China's economic changes and rising fuel costs. Retailers with their own direct import programs were already all too familiar with the situation. These factors combined to create a favorable backdrop for our price increase.

What were some challenges of the project and how did Elmer's work to overcome them?
Kingery: Two challenges come to mind immediately: change controls over pricing and customer master data. When the execution phase began, we had a few price changes come in after communications had gone out to customers. Obviously, those increases never materialized.  The other challenge was the quality of our customer master data. We worked to overcome this challenge by creating deliverables for the sales force to affect an overall update of our master data.

How did you measure the success of the 2008 price increase?
Kingery: One measure of a successful price increase implementation is the number of price exceptions on orders after the effective date of the increase. And, by that definition, Elmer's most recent price increase was very successful.

What advice and/or tips would you offer other consumer goods companies that are looking to implement a price increase?
Kingery: Do the homework so your retailers don't have to and anticipate the resulting retail price changes. Retail buyers are buried in executing plans for hundreds of items. The last thing they want is a sales person communicating a price increase without a fundamentally sound story to back it up. The last thing you want (as a manufacturer) is a sloppy price increase that changes retail price points on your products where the competition is staying the same.