Joanna Wells explores why justifying price increases is becoming a critical business capability as regulators, procurement teams, and customers demand greater pricing transparency.
This episode explains how businesses can justify price increases using cost, value, and margin instead of competitor pricing. It explores why following the market is no longer enough and how stronger pricing capability builds customer trust, protects margins, and prepares businesses for greater scrutiny.
TIME-STAMPED NOTES:
[00:00] Why Justifying Price Increases Is Becoming More Important
[02:08] Why Following the Market Is Not Enough for Justifying Price Increases
[05:25] How to Justify Price Increases Without Relying on Competitors
[07:21] What Businesses Need to Confidently Justify Price Increases
[09:20] Conclusion: Justifying Price Increases Starts with Knowing Your Own Numbers
Why Justifying Price Increases Is Becoming More Important
[00:00] There is a question that I’m starting to hear more and more in business meetings, not from regulators, first from customers, from procurement teams, from buyers who expect a better answer than that’s the market. It’s can you explain how you arrived at this price, not what the market is doing, not what your competitors are charging, how you arrived at yours this week.
[00:29] Another industry found itself under the spotlight. The ACCC has launched an unusual public investigation into four major fuel companies. A few weeks ago it was supermarket pricing laws. Before that, it was retail pricing, different industries, different moments, but the same underlying question. And in each case, the businesses under pressure have reached for the same defence.
[00:57] We followed the market, our cost went up. That is what everyone charges. I want to tell you why that defence is becoming less and less useful and what to have instead. The ACCC investigation is not about whether fuel prices are high, high prices are not illegal. The ACCC’s role is to examine whether pricing conduct is anti-competitive, whether the way prices are set, maintained or communicated, disadvantages other businesses or consumers in ways the law does not permit.
[01:34] That is a specific legal question, but it sits inside a broader commercial. One for any business whose pricing comes under scrutiny from a regulator, from a major customer, from a procurement team that has read the news, the challenge is the same. Can you explain how your price was reached? Not we followed the market, not our cost went up, not that is what we’ve always charged.
Why Following the Market Is Not Enough for Justifying Price Increases
[02:08] Can you explain independently specifically in terms of cost, value, and margin, how you arrived at the number in front of you? And here is what I see when I sit with businesses and ask them that same question. Most of them reach for the market. I want to tell you why that’s not enough. Following the market is a reasonable answer to the question, what did you do?
[02:38] It is not an answer to the question. Can you justify what you did? Those are different questions. When a fuel company says it followed global oil prices, it is describing a pricing method, a method most commodity businesses use. You watch what you, your input costs are doing. You watch what your competitors are charging.
[02:58] You set your price in response to both. That method works commercially. For years, it has been the standard approach in fuel, in raw materials, in commodity adjacent businesses of every kind. The problem however, is that following the market is a description of behaviour. It is not an explanation of cost structure.
[03:21] When a regulator or a major customer asks you to justify your price, they’re not asking what your competitors charged. They’re asking whether the margin between your cost of supply and your selling price can be explained on its own terms and following the market cannot answer that question. I’ve worked with businesses that price entirely by reference to the market.
[03:48] They watch competitors, they watch input costs, they adjust. They have been doing it for years, but when I sit with them and ask, can you explain your prices independently of what your competitors are doing? Most of them can’t. Not because they’re doing anything wrong, because they had never had to do it.
Most of them can’t. Not because they’re doing anything wrong, because they had never had to do it.
[04:10] That is the exposure and it is not a fuel industry exposure. Here’s the thing about the fuel industry’s pricing defence. It is not unusual. Ask for instance, A, a manufacturing CEO, how pricing decisions are made inside their business. They start with costs, add a margin and check what the market will bear.
[04:34] Ask the head of a distribution business how they justify their prices to customers. Our prices are in line with the market. We are competitive. Ask a B2B supplier. What happens when a major customer asks why the prices went up and they point to input costs to CPI, to what competitors are charging? Every one of those answers is a version of the same thing.
[05:02] Their market made me do it. None of those businesses is doing anything dishonest. Most of them have been pricing this way for years without any problem. But here is the question now, sitting underneath every one of those conversations, can you explain your price without reference to what the market is doing?
How to Justify Price Increases Without Relying on Competitors
[05:25] Can you explain the gap between your cost of supply and your selling price on its own terms without pointing to a competitor? Without citing CPI, without saying that this is what the market will bear. The moment your competitor becomes your justification, they also become your pricing strategy. Most businesses cannot explain their price without reference to the market, not because their prices are wrong, because they’ve built a pricing approach that requires the market to justify itself.
[06:04] And when the market stops being a justification, when a regulator or a major customer or a procurement team decides that following the market is not the answer, there is nothing underneath it. And this is the question that is now moving through every industry. The grocery reforms ask one question of retailers.
[06:28] The fuel investigation points towards the same commercial reality in a different industry, and neither of them needs to involve your business directly for the question to land on your desk. Commercial buyers, for instance, are asking tougher questions about price than they were five years ago. The category lead at a major distributor, the commercial manager at a construction business, the procurement lead at a mining company.
[06:55] Some of them are arriving at your next pricing conversation with exactly this framing. Why is this price what it is not as it competitive, not what discount can you offer me? Why? If that question arrived in your business tomorrow, if your largest customer asked your commercial team to justify your price independently of the market, what would they say?
What Businesses Need to Confidently Justify Price Increases
[07:21] Our cost went up, the market moved. That is what we’ve always charged. None of those are justifications. They are all descriptions of what the market did or what history allowed. The businesses that will navigate what is coming have a different kind of answer. The businesses that will navigate this are not the ones with the lowest prices.
[07:48] They’re not the ones who watch their most carefully. They are the ones who have stopped needing to. It means knowing exactly what it costs you to make, deliver, and support each product for each customer. It means being able to articulate the value you deliver above that cost, the service level, the reliability, the commercial relationship your customer would have to totally rebuild somewhere else if they left, means being able to explain without hesitating and without looking sideways at what a competitor charge is.
[08:26] Why the margin between those two things is the margin you have earned. I’ve been in those rooms. I’ve sat with businesses that price by watching the market. They adjust. When competitors move, they raise prices when costs rise. They have been doing it for years and it worked. And I’ve sat with businesses that don’t need to watch the market to know their price is right because they have done the work.
[08:56] When a regulator investigates their industry, they’re not worried. When a major customer asks them to justify a price increase, they don’t reach for a CPI figure or a competitor price sheet. They answer the question, the grocery reforms and the fuel investigation are different, but they point to the same Commercial reality.
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Conclusion: Justifying Price Increases Starts with Knowing Your Own Numbers
[09:20] Businesses are increasingly expected to explain how they arrive at their prices. And the only answer that will hold in a regulator’s office in a range review, in a procurement meeting with a customer who has read the news, is the one that does not need the market to finish the sentence. Stop watching the market.
[09:43] Know your own number.
Read This CEO Pricing Strategy To Improve Margin Management & EBIT
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