How Do You Explain Inflation To Foreign Clients?

[thomasb]

I tend to not speak much about the problems here as I don't want to scare clients.

Phrases like; We are late because the internet wasn't working last night, or the power was out just doesn't cut it. For me that goes for inflation as well, if the price went up that's just how it is, no explanation needed.

Off course my situation is slightly different (I run a software/web company), but if I was one of my clients and had to hear about (and be affected by) the problems here I would probably start looking for a company in a more serious/stable country.

 

[AmigoArtistico]

Well, if you're looking for some better inflation data (better than the INDEC) to share with your clients, you'll have it soon.

http://www.lanacion.com.ar/1587233-mauricio-macri-anuncio-un-indec-porteno

 

[Inferno.]

For those of you who do business in Argentina but with clients who come from other countries. . .
how do you explain inflation?
I just sent a client a budget for a job. She worked with us in September 2012. While we try to keep prices down as much as possible, there are some things that we need to pass onto a client.
For us, we need to receive payments via a local bank, so it will enter in pesos.
(can´t use zoom, bank in Uruguay, etc)
Do you explain with the budget, beforehand, any articles that you recomend that concisely explain the situation?
I don´t want to get into a whole political discussion with someone who probably doesn´t even know who the president of Argentina is, just want them to understand why there is a change.
(BTW, we aren´t talking about a huge amount of money).

I was thinking in your situation and I believe the best way (if you do want to explain why you are raising prices) would be to create an article in your website/blog, or an email, explaining it with your own words (while linking trusted sources to expand the situation). Pasting a link alone written by someone else could be seeing as some sort of excuse to hide your capitalist greed (?)

For example, something like this (just an idea, take it or leave it ):

___________________

Why do prices raise constantly in Argentina?
In order to explain this key point that affects you and us, we need to introduce you into the economic situation of this country to show you direct causes for this behavior. One of the most important points is a decrease in the international commerce with Argentina in the last couple of years. An economic variable called foreign direct investment (FDI) -that tracks the flow of money coming into the country- has been showing that investors are putting their money into other countrie's growing economies leaving Argentina. There is a good article written by the US Department of State (link) titled 2012 Investment Climate in Argentina explaining the current situation. Due to several crisis that Argentina has been through (defaults, hyperinflations, crisis), they are now -as a government- unable to take loans from international entities at a normal rate or issue debt (bonds) in other countries (stock markets like NYSE).

Due to several economic and political decisions (lack of investment into producing their own energy for example, causing the need to buy it from others and spending money directly from their Federal Reserves), the country has been experimenting harsh times. Dollars leaving the country are higher than dollars coming in. To address this they have been blocking imports (products and equipment bought outside) causing many brands to be forced to leave the country (see this article from CNN with some examples), putting exchange controls (more than 25 measures, see a summary from Bloomberg) avoiding people and companies located there to exchange the national currency into others more strong ones. Recent researches from Switzerland and the IMF (International Monetary Found) in a 60-country analysis, have showed that Argentina occupies the 59 place (check article).

The distrust in the national currency, the economic path taken, the increase on money printing without means to back it up, the constant blocks on currencies, more than a 70% devaluation of their currency since 2008 (check currency prices in google finance), among several other factors, are increasing the inflation rate of this country, that has been experimenting around 20%~ increase every year for the past 5. In other words, if a product in 2010 costs 100 pesos, in 2011 it will cost more than 120 pesos, and 140-150 in 2012. Due to this behavior, we need to adjust prices often to match the inflation of the country just to avoid losing money and our business in the process. As the president of this country has stated, they will not devaluate (at a higher rate) the currency to make it more competitive. In order to have a 100% legal business, we need to convert USD payments at the official rate with wire transfers -as the only option-, which is around 70-80% behind the paralell rate offered in the street (and the stock market using techniques with bonds and ADRs).

Due to all the reasons stated above, we must adjust prices to fight the yearly inflation. We are reducing costs to a minimum without sacrificing the quality that represent us, giving you the best value for your money. Thank you for keep choosing us and for your continued support.

Best regards,
Montauk Project
___________________

I don't know, something like that perhaps? Hope it helps you a little.

Chris

 

[Montauk_Project]

Thanks Inferno--I think for my clients that is a lot of explanation, I don´t think they would get to the second paragraph. I think an article by the Wall Street Journal is better because it shows I am not lying, but I like the last paragraph, it is well written.
I will see what they say on Monday.

 

[PhilipDT]

My favorite Mexican restaurant in the states has almost tripled their prices in the last 8 years from 4.65 a burrito to 12.95 for the same one a few months ago. Inflation in the states during that time was around 2% a year. They never offered an explanation for the price increases, and I never asked. I never went there because they were the cheapest option rather because they were the best. Almost a decade later they're far from cheap, but the quality hasn't suffered and they're as popular as they ever were. If they had put up a sign with every price change blaming the increase on some raised cost of theirs, I wouldn't have cared nor given it a second thought. As a consumer I really couldn't care less about how much money the owners and employees are making; I only care about the money going out of my wallet and the product that I'm receiving.

Which is why you can never use inflation to justify your prices to your clients, your prices are justified by the quality of the product or service you deliver and they'll understand that.

 

[fifs2]

My favorite Mexican restaurant in the states has almost tripled their prices in the last 8 years from 4.65 a burrito to 12.95 for the same one a few months ago. Inflation in the states during that time was around 2% a year. They never offered an explanation for the price increases, and I never asked. I never went there because they were the cheapest option rather because they were the best. Almost a decade later they're far from cheap, but the quality hasn't suffered and they're as popular as they ever were. If they had put up a sign with every price change blaming the increase on some raised cost of theirs, I wouldn't have cared nor given it a second thought. As a consumer I really couldn't care less about how much money the owners and employees are making; I only care about the money going out of my wallet and the product that I'm receiving.

Which is why you can never use inflation to justify your prices to your clients, your prices are justified by the quality of the product or service you deliver and they'll understand that.

Thx phil my point exactly. You can enter any market on low price but its quality that keeps you there inflationary pressures or not. The blue rate is a life vest to all exporters getting paid abroad as no intl client gives a damn about us running a company in a f**ked up country and why should they.

 

[trennod]

Its a pain in the arse. With our Argentinian clients its fine, most are recurring and obviously understand. International its tricky. Whats tricky for us as well, is that with many of our global clients where the work is referred from another office of our company, the fee negotiations are handled by another office. I actually think I spend about 5x more on budgeting here than back home.

I would recommend when you are negotiating and supporting your "inflation adjustments" referring to your fee increases due to increases in your own "cost bases" and then explain these increases in your own cost bases as being representative / on par with inflation XX per <insert source of your private inflation figures>
We usually use "Indice de Inflación Congreso" from Congreso de la Nación, which is an average of private estimates.

If the client is has been happy with your service, I think they would understand.

 

[trennod]

My favorite Mexican restaurant in the states has almost tripled their prices in the last 8 years from 4.65 a burrito to 12.95 for the same one a few months ago. Inflation in the states during that time was around 2% a year. They never offered an explanation for the price increases, and I never asked. I never went there because they were the cheapest option rather because they were the best. Almost a decade later they're far from cheap, but the quality hasn't suffered and they're as popular as they ever were. If they had put up a sign with every price change blaming the increase on some raised cost of theirs, I wouldn't have cared nor given it a second thought. As a consumer I really couldn't care less about how much money the owners and employees are making; I only care about the money going out of my wallet and the product that I'm receiving.

Which is why you can never use inflation to justify your prices to your clients, your prices are justified by the quality of the product or service you deliver and they'll understand that.

So are you saying you should just lob on a price increase without justification (that it should be inherently justified in the quality of your service/product)? And what about if your client asks you why you have increased your prices by 30%?

 

[PhilipDT]

So are you saying you should just lob on a price increase without justification (that it should be inherently justified in the quality of your service/product)? And what about if your client asks you why you have increased your prices by 30%?

I'm saying that in the end only the quality of your work/service will justify your prices. If you check my first post in this thread, I said to attribute the price increases to inflation if they ask but not to get into it. Business is not charity, that your costs have gone up and to maintain your profit margin you have had to increase your prices is not an argument that will ever persuade someone to buy from you.

 

[trennod]

I'm saying that in the end only the quality of your work/service will justify your prices. If you check my first post in this thread, I said to attribute the price increases to inflation if they ask but not to get into it. Business is not charity, that your costs have gone up and to maintain your profit margin you have had to increase your prices is not an argument that will ever persuade someone to buy from you.

I hadnt read all of the thread. I agree with you, your product/service must be good enough to satisfy what you have charged.