Last week I wrote about the latest round of tariffs the US has levied on goods imported to China and how US companies can effectively employ messaging and preparation to pass along the higher costs to customers through price increases. A key part of messaging for many industries is a price increase letter.
Elements of a good price increase letter related to tariffs:
- Brief, direct, respectful, and fact-based
- Makes plain that the source of the increase is an economic force well outside your company; essentially, you and the customer “are in the same boat” at the mercy of tariffs
- If possible, explain ways you have protected customer from either or both rounds of tariffs
A short, straightforward tariff-related price increase letter example is:
Dear Esteemed Customer,
As you know, last year the US government imposed 10% tariffs on products imported from China. As of May 10, 2019, that tariff was increased to 25%. A large majority of our products were impacted by these tariffs.
*Unfortunately for small businesses like ours, and for our customers, this means a price increase effective on all orders placed starting June 1.
We greatly appreciate your business and patience during these volatile times. We’re dedicated to bringing you the best products and services at the best prices, and we will continue to do so for as long as we’re in business.
If you did not increase prices in the fall of 2018 from the first round of tariffs (or not the full 10%), you could replace the *italicized red portion above with language such as:
*We were able to shield customers from a large portion of the initial round of 10% tariffs last fall through aggressive vendor negotiations and internal operational efficiencies. However, to protect our quality and service to you, a price increase effective June 1 is necessary given the latest tariff increase.
Consider softening the blow with timing with one of these options:
- “Out of respect for our partnership, despite our substantially higher costs, we will hold pricing for three months to give our customers time to prepare and adjust to the impact of these tariffs. We’re doing everything we can to keep our prices as low as possible for as long as possible.”
- “Did we prepare? Yes! We placed orders before these tariffs went into effect anticipating much higher costs. With those orders, we will be able to offer “pre-tariff” prices on many items while supplies last. We’re doing everything we can to keep our prices as low as possible for as long as possible. Once we sell through our “pre-tariff” inventory, new pricing will go into effect.”
You might consider taking the opportunity to include other verbiage in your letter such as these examples (or other policies or suggestions specific to your business or industry):
- Help customer AND cross-sell: “We also offer a number of products manufactured outside of China that are unaffected by current trade policy. Please contact your sales representative for more information on these products.”
- Protect business by shortening quote expiry: “Due to the uncertainty about how new pricing will affect the market, our vendors will no longer provide more than 10 days’ notice for price increases, nor will they honor any previously agreed-upon long-term price contracts. Because of this, quotes issued after June 1 will expire after 10 days.”
Remember that messaging should be brief and respectful, should tactfully make the case that the problem source is outside your control, and should reinforce commitment to helping the customer any ways which are inside your control. Wrapping this letter in a comprehensive messaging and preparation strategy for rollout (per last week’s blog post) will help you realize the highest price increase possible with the minimum possible sales volume loss.