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The Price Is Right?

For many distributors, pricing pressures are taking more of a toll now than at any other time in recent memory. MHEDA members interviewed for the 2006 Industry Forecast expressed concerns about the rising costs of oil and gas, insurance, steel, plastics and a number of other factors that will affect their bottom line in the coming year. A majority of distributors, 73 percent, indicated that they will increase prices this year, and many said they are raising prices more frequently now than in the past. When is the right time to level a price increase, and what is the best way to help customers accept it?

“Those are somewhat strange questions in our industry,” says Materials Handling Equipment Company (Denver, CO) President Gary T. Moore. “We tend not to say the price went up. It's more a matter of giving the customer the equipment that's going to get the job done. We just show them that what they're getting justifies the price we proposed them, whether it's an increase or not.”

“I haven't seen this kind of pricing expansion since the 1970s,” says Bob Iwrey, president of McNichols Conveyor Company (Southfield, MI). On the bright side, Iwrey thinks 2006 will be more stable than 2005.

For the first time since 2003, Advanced Battery Technologies (Greensboro, NC) will raise its prices. President Ken Fearn is instituting a labor rate increase in 2006. “We can increase labor immediately, but on new quote activity we usually transition over a 90-day period.”

Richard Sinclair, president of Jefferds Corporation (St. Albans, WV), believes that prices will increase in 2006 due to numerous factors, including the costs of steel, rubber and fuel and an emerging Asian economy. “By the time we get around to announcing price increases, it's a fait accompli because our customers know about it already.”

“We're getting price increases every week on plastic products,” says Rod Jack, president of Storage Solutions (Knoxville, TN), adding to the already volatile steel and energy markets. The good news, he says, it that most customers understand that price increases are just a current cost of doing business. “Most of them use the same products we do, so they know already. It's not really an issue.”

John Croce, president of Abel-Womack Integrated Handling Solutions (Lawrence, MA), also expects prices to rise. “When we are apprised of an increase after we've already made a proposal, it's the responsibility of the sales department to notify the customer. Usually there's a 30-day window from the manufacturer, so it serves as a call to action to our sales force to get the orders placed before the increases go into effect.”

“I expect the pressure on pricing to continue because we're in a world market. Like it or not, all domestic manufacturers have been pressed to compete with what's being offered from offshore,” says Century-Fournier (Youngstown, OH) President William Petro. The way to reconcile increased prices, Petro says, is to pay attention to what the customer is willing to buy. “You have to supply the products that they're willing to pay for. Beware, though, because many customers are very price-focused.”

Gary Denardo, president of Star Equipment (Blaine, MN), tries not to raise prices more than once a year, though myriad surcharges were added throughout the year in 2005. “Most of the time when we introduce price increases to customers, it's reactive rather than proactive. We don't just randomly up our prices without a reason.”

“We can't absorb increases,” says John Cosgrove, president of Atlantic Handling Systems (Ho-Ho-Kus, NJ). “It directly affects the bottom line.” Cosgrove suggests just explaining to customers that freight costs are up because of fuel prices and the overall volatility of the market.

At Bastian Material Handling Corp. (Indianapolis, IN), salespeople are given the flexibility to price as they see fit. “I think the market is strong enough that we can demand higher margins. I'd rather see more growth on that side rather than just sales,” President Bill Bastian II says.

For Conveyors & Drives (Atlanta, GA), President L. Gary Ashley introducing price hikes to customers is a non-issue. “We don't think it's good practice to go out and say that we've had a price increase. We just quote them a price. If it happens to have gone up since the last time, we just quote a new price and answer any questions as they come.”

Chris Owen, general manager at Missouri Industrial Equipment (Jackson, MO), always expects prices to go up. “It's just reality. There's not much you can do to combat it. To maintain our profit margins, it's just something we have to do.”

“We expect the cost of service to go up, both to us and to our customers. We've already seen this with respect to fuel costs and environmental impact costs,” says Bill Ryan, vice president and general manager of LiftOne (Charlotte, NC). Ryan says he's already had 3.5% increases from his primary manufacturers, and figures that interest rates will continue to rise, causing the customer to pay even more. “We maintain an ongoing dialogue, particularly with our key customers, because we often look at it as a cost-plus arrangement. We share our cost increase impacts with our customers to help us all understand if the proposed solutions are still effective for both of us.”

National Lift Truck (Franklin Park, IL) will elevate prices again in 2006 after raising its rental, service and trucking rates last year. “We continuously monitor labor, fuel and product pricing because it is important to know what our costs are,” says Vice President Jeff DuBose. “We also track our competitors' prices. It's a gauge for us to know when it's time for an increase.”

Pricing is always a sensitive issue for Rick Mize, sales manager at Allied Equipment Service Corp. (Indianapolis, IN). “When confronted with a price increase, some customers give you the look like you're trying to stick them. Usually, once we explain it, they are okay with it.” Mize says the company had three price increases in 2005, in both lift trucks and industrial batteries.

“We'll get hit with more price increases from vendors than we've had in quite a while,” Paul Mohrman, president of Lift Power (Jacksonville, FL), says. “Luckily, most customers already have an understanding of it from other parts of their business. It's not nearly as difficult to broach the subject with them as it was ten years ago.”