Price Increase Negotiation · Price Hike Notice
Price Increase Negotiation
What is price increase negotiation?
- A price increase notice starts the negotiation; it doesn’t end it
- Prepare four things first: evidence, timing, tiers, and alternatives
- Trade every concession for terms such as volume or duration
It’s easy to assume a price increase is done once you send a formal notice. In B2B, though, the notice is where negotiation begins. Fending off discount demands is a defensive negotiation; a price increase means raising the subject first and absorbing the relationship cost, so the preparation matters more. Your customer contact has to take the proposal back and make the case again inside their own company. The real task in a price increase negotiation is to give that contact evidence they can use in their internal report.
Preparing involves four things. The first is evidence: instead of saying “costs went up,” show which of raw materials, labor, or logistics rose and by how much, using public indices or a breakdown by cost item. The second is timing: tell the customer before its budget planning closes, so the increase makes it into next year’s budget. A common benchmark is to give notice two to three months before the effective date, but any notice clause in the contract takes precedence. The third is tiering: don’t apply the same increase to every customer; vary it by profitability and contract terms. The fourth is alternatives.
Alternatives are the options you offer customers who find the increase hard to accept. Typical examples are a smaller increase in exchange for a volume commitment or a contract extension, items with lower costs through adjusted specs, packaging, or delivery frequency, and a phased increase. Always trade a concession for something in return, and set your walk-away floor internally before giving notice. If you are the subcontractor in a subcontracting deal, Korea’s delivery price adjustment system, which builds major raw material price changes into the payment, or its price adjustment consultation system, may give you grounds. Eligibility and requirements can change, so check the latest guidance from the Fair Trade Commission and the Ministry of SMEs and Startups.
Where it goes wrong in practice is how the increase is delivered. If a sales rep sends it by email only to avoid an awkward conversation, the customer reacts to the attitude before reading the content. For key accounts, the right order is to explain in person or by phone first, and send the formal notice afterward. Conversely, if you open with an apologetic "we can adjust this," the entire increase becomes a bargaining chip. Also, coordinating the size or timing of an increase with competitors can raise antitrust (collusion) issues, so the decision to raise prices must rest solely on your own costs and judgment.
John KimAuthor of B2B Marketing Design and CEO of Nanum Consulting
Jaehyuk ParkHands-on instructor in B2B technical sales and AI-driven sales strategy| Category | Price Negotiation · Discount Management | Price Increase Negotiation |
|---|---|---|
| The party that raises it first | Customer | Supplier |
| The core task | Answer discount demands with value and conditions | Presenting your rationale and alternatives |
| Timing | Just before an order or renewal | Before the customer sets its budget, and months before the effective date |
| What to prepare | Discount authority table and trade-off terms | Cost evidence, customer tiers, floor price |
| Main risk | Margin erosion | Lost accounts and damaged relationships |
The term has no single originator; it became common through the day-to-day practice of ongoing supply relationships. Reflecting cost changes in transaction prices has long been a challenge. In Korea, the delivery price adjustment system, which ties major raw material price changes to payments, was introduced under the Subcontracting Act and the Win-Win Cooperation Act, adding an institutional basis. For detailed requirements, follow the latest guidance from the relevant authorities.
Consider a hypothetical case. Company A makes packaging materials and earns KRW 24 billion (≈ US$17,956,000) in annual revenue from 85 customers. The price of its main raw material rose 18% in a year, and its operating margin fell from 6% to 2%, but it hasn’t been able to raise prices even once in the past three years.
- In September, the head of sales segmented the 85 customers by profitability. The increase was set at 9% for the 12 loss-making accounts, 6% for the 58 average accounts, and 4% for the 15 customers on long-term commitments.
- A cost team manager put together a one-page summary of a 12-month trend in a published raw material price index and the cost breakdown. It showed that with raw materials at 52% of cost, an 18% rise leads to a 9.4% rise in unit cost.
- Sales reps visited the top 20 accounts in person within the first two weeks of October. One purchasing manager replied, "With this material, I can take it up the chain."
- For the seven customers who said an increase would be hard to accept, the company offered two alternatives: cut the increase from 6% to 4% in return for a two-year volume commitment, or switch to items with a revised packaging spec so the unit price stayed the same.
- The formal notice went out 90 days before the effective date, after the visits were done. For customers that did not reply, the sales rep called twice, two weeks apart, to check where their internal review stood.
- As of January, 71 of the 85 customers had agreed to the increase and 9 had chosen a commitment or a spec change. Five accounts ended the relationship. The average increase was 5.3%, and operating margin recovered to the 5% range.