Implementing Price Increases Successfully in Paper & Packaging Industry
Posted by Colin Carroll on Thu, Dec 10, 2009 @ 06:21 PM
A recent Wall Street Journal article discussed how some companies were gaining pricing power and passing on raw material related cost increases. As energy and raw material prices increase, margins come under pressure and suppliers start to consider price increases. But the article pointed out that price pressure can vary widely in the supply chain: some downstream companies are incurring higher prices without being able to command them.
The age old margin squeeze: early recovery in some industries means that costs start to increase long before your own markets are ready to accept price increases.
The article mentioned Packaging Corp., a Lake Forest, Ill., maker of containerboard and corrugated containers for shipping. The company reported lower expenses, but said the prices it can command are falling even faster, cutting into its bottom line.
All is not lost for paper and packaging companies, however, as markets show signs of nascent recovery. In the current period of tentative recovery, even before backlogs shoot out, the most effective price increase strategy is to adjust pricing guidelines.
By selectively reigning in discounts on new business, companies can achieve the net effect of increasing prices, even before increasing operating rates translate into upward pricing pressure. Early in the recovery, suppliers still need volume, but may not need to discount as deeply to win new spot orders. During this period, certainly, paper and packaging companies should be careful not to commit to any long-term discount pricing.
Key actions include:
- Reducing discounts on the early recovery grades
- Reducing discounts on grades made on the same production assets as early recovery grades
- Reducing volume discounts to reflect current market conditions
- Tighten scrutiny and approval policies about for large, deeply-discounted orders
By intelligently refining discount guidelines and preparing for price increases, companies can maximize price realization during current phase of slow recovery. While paper and packaging companies may not have the power to increase prices, tightening policies can help achieve the net effect of increasing realized prices.
To learn more about value of pricing to mill product companies, please click here. You can also review my article in Pulp & Paper International on Price Management in the Pulp and Paper Industry.