Despite what all the leadership gurus tell you about constant encouragement and the importance of repeating your message until they get it, it’s simply impossible to cheerlead (or only encourage) your sales team to success in pricing.
Think about it. You’ve probably heard the “Power of One Percent” presentation a dozen times over the past couple of decades. Distributors by the hundreds periodically pick up on this message and share it with their teams. Trust me: some have repeated it so many times their salespeople can recite the message verbatim. But, year after year, their businesses still lack any meaningful, sustainable increase in their margins.
Why Pricing Success is a Challenge for Reps
The sad truth is, from a behavioral perspective, the deck is stacked against you from the start when it comes to pricing. Customers are frequently pushing back against your prices, encouraged by your reps’ tendencies to cave. Sometimes this happens because the buyer is professionally trained to ask for a better deal. Other times, decades of conditioning by your sales team has accommodated and then rewarded this customer behavior.
The customer learns this lesson: ask and you shall receive. Sadly, over half of reps start their price negotiations at the price they hope to achieve – leaving no room for concessions without falling below their targets.
Every day, we encourage sales reps to build strong customer relationships – preferably predicated on the business value they create for their customers. In the trenches, this builds a culture of doing whatever it takes to serve the customer. In 90 percent of a sales rep’s job, that guidance is dead-on. When it comes to sale price (and terms), however, the seller needs to not only serve the customer but also serve their company’s stakeholders (including the economic viability of their own sales force).
This misappropriation of “customer-centricity” translates into pricing conflict-avoidance at all costs. Reps come to believe it’s their duty to “cave in” to any haggling about budgets or price – providing, at the very minimum, some type of nominal discount. Usually, a discount ending in 0s or 5s.
Too often, there’s little discussion of the value added by their company, no discussion of commonly observed market prices, no pushback about the price being fair for both companies, and no asking for offsetting volume or order-boosting add-on product sales.
Instead, it’s ‘ask and you shall receive’. Reps turn their eyes to the ground and say, “Hey let me see if I can come up with something a little better.”
Even worse, after the relationship has matured, they may actually succumb to the “good guy syndrome” and proactively provide their favorite customers with the best prices on the planet – because that’s what friends do for one another. Research across over 500 distributors indicates transient, convenience-oriented small customers are commonly getting equal or better prices than your biggest, most sophisticated, competitive customers. Why? Because that’s what good reps do.
Let’s Get This Pricing Problem Under Control
If you want to improve your margins, you’re going to need a systems approach that leverages advanced analytics, not a home-cooked Excel spreadsheet that finds the average margin and arbitrarily puts adders on certain products or customers. To drive adoption with the field, it needs to be a rigorous, data-driven tool.
A proper systems approach to pricing and profitability links your pricing positions to your sales, cost-to-serve, and purchasing strategies. These four factors make up what we call the Profit Diamond, and none of them should operate in a vacuum. Any weaknesses or concessions from one of the corners of the diamond should be compensated for by another.
Naturally, measurable improvement also requires visibility. Armed with management tools that provide guardrails against excessive deviations and visibility into exceptions to the pricing structure, a distributor can begin to make meaningful, sustainable progress and have data-driven conversations that matter.
These metrics provide for data-driven coaching conversations. Imagine meeting with a salesperson and saying, “Your current pricing system compliance is 62 percent, what can we do to bring more customers onto the system?” Or if, in a periodic review of pricing performance imagine being able to tell a salesperson, “If you would have used the system 10 percent more of the time you would have earned $4,397 dollars more commission this quarter.”
Advanced management tools further drive the pricing plan forward. After the initial coaching phase comes to a close, data from which to make hard management decisions grow in importance. Quick reports allow the manager to easily segregate those who provide great pricing talk from those who produce real results. This allows for meaningful employee reviews, specific areas for improvement, and the occasional heart-felt talk about their future with your company.
Drive the Pricing Process Forward
Profitability improvement through pricing isn’t that difficult, but you must have a real process to drive your pricing plan forward. What’s real? Your process must have prescriptive, data-driven, target price points; negotiation skills training; metrics of accountability and impact; and coaching processes. Skip one of these and it’s not really a process.
Standard practices and training help build your team into a profit-making machine where the outcome is the result of a data-driven, engineered process. We’ve seen with our clients that the impact is consistently two to four margin points on affected revenue, or $200,000 to $400,000 in annual profit improvement per $10 million of revenue. Results like these are what makes the effort and process-building so valuable.
SPARXiQ provides holistic approaches to pricing, sales, and profitability analytics with a proven process for measuring improvement. Put a real plan into play instead of simply cheerleading your sales team to pricing success.
Strategically price every customer and product.
PriceGPS™ provides data-driven recommendations to help distributors and manufacturers maximize their margins and allow your sales force to focus on serving customers and delivering value.