Source: Condiment Business Circle (ID: twpsq0909) In 2017, amid soaring raw material costs, Haitian raised prices across its product lines by about 7%, and its profits grew nearly 30% year-on-year. Raising prices seems simple and beneficial, but is it really so? In fact, price increases are a game involving manufacturers, distributors at all levels, and consumers. Only by balancing the interests of all three parties can everyone be satisfied. A slight misstep can lead to total failure. 1 | Haitian's 2017 Price Increases Across All Product Lines | Profits Soar ▼ Haitian's products generally saw price increases of about 7% in 2017, while sales of its top three products—soy sauce, condiment paste, and oyster sauce—grew by 10.53%, 6.2%, and 13.56% respectively, and annual profits increased by 29.3% compared to the previous year. Raising prices is a common practice for condiment companies to cope with sharp increases in raw material costs. But not every company is as fortunate as Haitian. Many companies that raised prices did not achieve the expected results; instead, they lost customers and saw profits decline rather than rise. This confirms the saying: a successful price increase can bring huge profits, while an unsuccessful one can allow competitors to gradually erode the market that a company has cultivated over many years. For condiment companies with relatively low profit margins, it is especially important to act cautiously and not rush into price changes. 2 | Price Reduction Strategies for Large, Medium, and Small Enterprises | Follower or Leader? ▼ Leading enterprises have considerable say in product pricing; their actions affect not just one company but an entire industry. In 2017, when comprehensive inflation arrived, price increases were heard across all industries. Raising prices is normal; the key is when to raise and by how much to maximize profits in this price game. Large enterprises and big brands, due to their scale advantages and high brand premiums, often have stronger resistance to raw material price increases, while small enterprises have limited capacity to withstand such increases. Does this mean small and medium enterprises can raise prices earlier and more than large enterprises? The answer is definitely no. If the leading enterprises haven't raised prices, how can a small enterprise with no ranking in the industry raise prices first? If you raise prices first, you are making enemies of distributors and consumers, unless your product has very few substitutes. But if you had such an important position, you wouldn't be a small, insignificant enterprise. However, sometimes you shouldn't blindly follow the price changes of leading enterprises, because price changes not only affect profits and sales but also brand positioning and shifts, and can even determine the survival of the company. Price changes are truly a technical task, with both skills and pitfalls. From 2005 to 2007, the fermented soybean paste industry experienced a roller-coaster ride, with raw material prices fluctuating, leading to a major industry shakeout. In 2005, Laoganma was still 5.5 yuan per bottle, and during promotions it dropped to 4.8 yuan, and this promotion lasted for two years. Initially, many competitors chose to follow suit, but they didn't expect the promotion to last so long. It wasn't until 2007, when raw material prices rose across the industry, that the following companies realized that Laoganma's market volume was sufficient to support not raising prices. During the raw material price increase, a large number of small enterprises closed down. Some enterprises, unable to bear losses, raised prices first, but due to their small size and weak brand, their market competitiveness was greatly reduced compared to Laoganma, which kept prices unchanged. Only when the small competitors were nearly eliminated did Laoganma seize the opportunity to raise prices. This round of reshuffling further solidified Laoganma's leading position in the industry. 3 | Tips for Raising Prices | ▼ 1. Communicate with channels in advance What issues should companies pay attention to when raising product prices? How can they avoid problems? Are there any techniques worth learning from during the price increase process? Should companies inform distributors in advance before raising prices? The answer has always been ambiguous. If a company surprises distributors with a sudden price increase, unprepared distributors may easily develop resistance and even take drastic actions like jointly boycotting the increase, which would be counterproductive. Unless your product is as scarce as Moutai liquor, where the company firmly holds pricing power and products are still in short supply even after price increases, there is no need to obtain distributor consent before raising prices. If the news of a price increase is released to distributors in advance, they are likely to stockpile goods before the increase, causing the company to face difficulties selling products in the early stages of the price increase. Despite this, I still lean towards communicating with distributors before raising prices. Because generally, as long as the price increase is within a reasonable range, distributors will cooperate, as long as they are left with sufficient profit margins. Although they may stockpile goods after learning of the price increase, this also reduces the resistance to the price increase. Distributors with goods in hand naturally don't want prices to drop further. 2. Combine price increases with promotions to retain old customers and attract new ones To reduce the impact of price increases on distributors and consumers, promotional measures can be adopted. For example, if prices rise by 8%, a 4% promotional discount can be offered. After a period of time, when consumers have become familiar with the new prices and are no longer sensitive, the manufacturer can stop the promotion. This approach can maximize the retention of old customers while also attracting new ones. 3. New bottle for old wine: give a reason for the price increase If product quality remains unchanged, a sudden price increase is often hard for consumers to accept. Before raising prices, innovating in quality or packaging makes it easier for both consumers and channel partners to accept the increase. ▲ New packaging of Weilong Da Mian Jin Weilong Food is a good example. After upgrading its packaging, its image improved, making a price increase natural. Manufacturers and distributors achieve a win-win situation, so why not do it? 4 | Major Pitfalls to Avoid When Raising Prices | ▼ 1. Avoid raising prices too much at once For condiments, a single price increase should ideally be controlled within 10%. Chen Xiaolong, a Chinese FMCG marketing expert, believes a 7% increase is relatively safe. If a price increase exceeds 25%, sales may drop by 50%. Although a large price increase raises the profit per unit, the sharp decline in sales volume can lead to lower overall profits. Profits come from the market, but you cannot simply keep taking from the market. Think about it: if a second- or third-tier brand's product price exceeds that of a first-tier brand, why would consumers choose you? The result is that you will hand over the market you worked hard to capture to your competitors. 2. During the transition from old to new, the price system is prone to chaos Any reshuffling stems from price changes. If you raise prices correctly, it's an opportunity; if incorrectly, it's a crisis. A survey of bankrupt companies once found that out of 1,000 companies, more than 200 died due to product price increases. The price system is the lifeline of a product. How can you manage this line to ensure a smooth transition from old to new? Price changes test a company's management and response capabilities. Generally, when prices change, the product price system is at its most chaotic. After learning of a price increase, large distributors often use their capital and channel advantages to stockpile goods in advance. When lower-level distributors and secondary wholesalers come to them for goods, they may be reluctant to sell, causing a shortage at the retail end before the official price increase, ultimately harming the manufacturer's interests and defeating the purpose of the price increase. -END-