Month: June 2014

Are You a Discount Shop?

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Read our article about the keys to not being pressured into using discounting for all customers to appease your price-sensitive ones.

Excerpts of the article authored by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales follow.

“Before we instituted a pricing process we were just an off-price discount shop.” 

Many years ago someone made the off-hand comment, “Before we instituted a pricing process we were just an off-price discount shop.”  This thought has rattled around in my mind for a good many years.  Truth is; I find myself repeating it as I talk about the power of the Strategic Pricing Associates (SPA) pricing program.  But recently, I have been wondering just exactly what the world must look like through the eyes of an honest-to-goodness price chopping discounter.

Conjure up the picture of a discount shop – a vivid recollection in my mind’s eye is a reoccurring Radio jingle for a clothing outlet:

“No frills, no fixtures, and no salespeople – great deals.  Our loss is your gain!” 

Bargain hunters love this sort of thing.  The smart ones don’t depend on these places – instead buying is a bit of a sport.  They understand all sales are final, there’s no guarantee and it’s buyer beware to the nth degree!  The ill-informed and unaware soon fall victim to unexpected quality problems and a seller unwilling to provide satisfaction.  But, they learn quickly – you can’t rely on the places for your real needs.

“…you have salespeople who understand your product offering”

If you are a wholesale distributor this model really doesn’t work.  For one thing, you have salespeople who understand your product offering.  They have cars, phones, computer systems and a myriad of support staff backing up their efforts.  According to one of the latest distributor association profit reports – our people alone represent over 60% of our costs.  You can’t have qualified people and the lowest price on the planet.

Unlike the off-price discount shop, wholesale distributors must support all of their customer needs.  Here we’re talking about not just the fastest movers, or a collection of close-out merchandise.  Instead we maintain spare parts and even some slower moving items kept just-in-case our important customers need something fast.  Distributors call it service stock – and customers have come to rely on it.

“Hold on, I’m not really an off price discount shop.”

Now here’s where we need to take a hard introspective look.  By now most would say, “Hold on, I’m not really an off price discount shop.”  Discount shops would never hire the caliber of people we employee.  Instead, they would look for folks willing to work for minimum wage.  Instead of hiring a top notch recruiter to find a “product expert”, they would attend the same job fairs as fast food joints and temp-labor firms.

A discounter would never use a nice building with a training facility designed to handle customers interested in learning.  A discounter would minimize whatever stock they had – unless they could get a hot deal on a truck load of grey-market stuff.  And, no discounter in their right mind would ever offer any type return policy.  Making money as a discounter is all about minimizing costs, selling lower cost product and avoiding expensive service issues.

“Death comes slowly for organizations that support a knowledge-based distribution infrastructure and an off-price discounter selling culture.”

Death comes slowly for organizations that support a knowledge-based distribution infrastructure and an off-price discounter selling culture.  Unfortunately no one consciously launches into this situation.  Instead, it comes over time – encouraged by human behavior and purchasing department negotiation strategy.

How does this happen?  Well, first your sales people establish themselves with customers.  Remember, your sellers really do want to provide the right kind of service to their customers.  And the customers recognize this quality.  They build relationships, maybe make a few small sales – then it happens.

“How does a company manage to avoid this trap?”

… Mostly via a pricing process…  Without a process, every customer transaction becomes the responsibility of the salesperson, customer service or counter sales rep interacting with the customer. Every pricing situation is an exception.  If they are conscientious folks – and most are – they want to close the order.  They slowly move customer margin levels downward until no one complains.  If they hear squawking (which is often a negotiation tactic) they adjust prices down another notch – it’s that simple. And can be avoided if the distributor has a process.

The trouble with process in today’s distributor environment – everybody thinks they have one but very few really do.

Click here to read the complete article.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can subscribe to our Strategic Pricing Pays blog or follow us on LinkedIn or on the following major social media channels and file sharing platforms: Twitter, Google+, Facebook, SlideShare, and YouTube.

We also encourage you to join the Strategic Pricing discussions in our LinkedIn group and to sign up to receive our Strategic Pricing Newsletter by clicking here.

Strategic Pricing Tools Unlock Significant Hidden Profits

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Are you interested to learn about the Strategic Pricing approach to increasing margins and the strategy that can lead to pricing excellence? Are you new on the journey to pricing excellence and need more information on how to leverage science-based tools to increase margins significantly?

SPA’s strategic pricing processes and analytics tools address these all too common issues and opportunities for increasing profitability:

  • Customer relationships focused on product/service value, not price
  • Identifying and capturing available margin premiums
  • Identifying price-sensitive products and services
  • Improving sales reps’ confidence in prices
  • Stopping undisciplined discounting
  • Tracking metrics for sales force accountability
  • Improving pricing consistency and fairness

SPA helps clients to quickly and efficiently build a more profitable pricing architecture. We work with our clients to segment their customer base and product/service sets. We profile the relative sensitivity of customers and products, to recommend pricing structures that focus discounting where it pays off in the market; and extract price premiums where there is less sensitivity.

We recommend price levels by product/service category and customer segment, as well as customer/product-specific price levels. We recommend list prices, discount/mark-up structures, and even customer contract pricing. We develop guidelines to help our clients manage and control exceptions to the architecture, and to identify pricing leakage points in the business. We coach our clients on the principles of strategic pricing and the process of mastering pricing and assist them in training sales reps.

The Hope Group is a distributor that is well on their way to achieving pricing excellence and is just one of hundreds of companies that are driving on average 2-4 margin point gains on affected revenue with minimal customer pushback by using strategic pricing processes and analytics tools from Strategic Pricing Associates (SPA). The benefits are staggering; and they are typically accomplished in less than 90 days.

“…pricing decisions were made randomly and spontaneously…there was no control, no discipline and no process. Now, with the SPA process in place, we increased our margin 19 percent and have doubled our pretax profits despite flat sales. These results are almost exclusively attributable to Strategic Pricing strategies.”

Carey Rhoten, CEO of the Hope Group

Click hereto read their testimonial about their journey to pricing excellence.

SPA Events

Click here for other SPA Seminar dates and locations and click here for upcoming SPA webcasts.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can subscribe to our Strategic Pricing Pays blog or follow us on LinkedIn or on the following major social media channels and file sharing platforms: Twitter, Google+, Facebook, SlideShare, and YouTube.

We also encourage you to join the Strategic Pricing discussions in our LinkedIn group and to sign up to receive our Strategic Pricing Newsletter by clicking here.

Case Study: SPA Strategic Pricing Project for Parker Hannifin Provides $800 Million Impact

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SPA was selected to drive Parker Hannifin’s Strategic Pricing initiative that involved leading them away from an undisciplined, non-strategic “cost-plus” approach to a value-based, strategic architecture with improved internal processes and controls and the impact was estimated at $800 million by Parker’s CEO.

Strategic Pricing Associates led Parker Hannifin’s Strategic Pricing Initiative through its pilot stage from 1999 to 2001, and through the global roll-out from 2001 through 2005.  Encompassing all of Parker’s operations worldwide, roughly 90 manufacturing businesses and 30 trading subsidiaries (company-owned distribution channels), the initiative was a central part of CEO Don Washkewicz’s WIN Strategy, a three-pronged approach to improving profitability in this $10 billion, NYSE company (PH). The initiative involved leading all of Parker’s operations away from an undisciplined, non-strategic “cost-plus” approach to a value-based, strategic architecture with improved internal processes and controls.

The impact was estimated at $800 million by Don Washkewicz, as reported in a front-page Wall Street Journal article (March 27, 2007 ).

“In early 2001, shortly after Donald Washkewicz took over as chief executive of Parker Hannifin Corp., he came to an unnerving conclusion. The big industrial-parts maker’s pricing scheme was crazy. For as long as anyone at the 89-year-old company could recall, Parker used the same simple formula to determine prices of its 800,000 parts — from heat-resistant seals for jet engines to steel valves that hoist buckets on cherry pickers….”

Parker’s share price more than tripled during the period, easily outpacing peer industrial companies’ performance.

Working with operational leaders worldwide, SPA developed pricing strategies that maximize the profitability of each business unit. The project covered virtually every aspect of Parker’s pricing mix including:

  • Competitive strategy and positioning
  • Channel pricing strategy into distribution: list prices, discount tiers, rebates, exception pricing guidelines
  • Value-based economic analysis of customer usage
  • Good/better/best positioning of products
  • New product pricing strategy
  • Direct account pricing strategy: customer/part number pricing recommendation
  • Global pricing agreements
  • Management of freight recovery, EDI incentives, other terms and conditions

The project led to Parker Hannifin’s decision to employ a strategic pricing manager in each division. SPA also helped Parker recruit a VP of Strategic Pricing, Dick Braun, with whom they had worked earlier in his career at GE Lighting.

SPA also helped Parker with training and development to institutionalize the positive impact.  Beginning in 2004, SPA developed the Strategic Pricing Workshop program for Parker’s distribution channel. From a pilot program of six distributors, the program has expanded to over 60 of Parker’s leading distributors, with a majority of the elite distributors in each business segment participating in the program. Over half of the participants have progressed from Generation I to Generation II or beyond, with the original pilot six distributors now in Generation III.  Parker distributors have consistently achieved improvements greater than 2 percent of sales; and many have reached 4 percent of sales.

Click here to read more SPA case studies.

SPA Events

Click here for other SPA Seminar dates and locations and click here for upcoming SPA webcasts.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can follow us on LinkedIn or on the following major social media channels and file sharing platforms: Twitter, Google+, Facebook, SlideShare, and YouTube.

We also encourage you to join the Strategic Pricing discussions in our LinkedIn group and to sign up to receive our Strategic Pricing Newsletter by clicking here.

SPA Pricing Cube™ – The Architecture of Optimized Pricing

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The SPA Pricing Cube™ combines your understanding of markets with SPA’s powerful analytics, to identify the optimal pricing architecture for your business, focusing discounts on the most price-sensitive products and customers, where it will have the biggest payoff in competitive positioning; and extracting small premiums on less-sensitive products and customers.

The SPA Pricing Cube™ takes the guesswork out of optimized pricing in complex environments, allowing your sales force to focus on serving the customer and driving value. Our process provides for flexibility and discipline in pricing, to create a balance that works in your business.

Many complex companies have missed fundamental opportunities to manage pricing in two key dimensions.  Often many customers are getting lower prices than they should and low-sensitivity products are not generating price premiums. The combination is typically worth 2 to 4 margin points.

The following describes what the SPA Pricing Cube™ can do for your company.

  • Provides a foundation for setting pricing standards in complex environments
  • Strategic Pricing Standards are structured around market segments, customer sizes, and product/service sensitivity
  • Provides a foundation for organizing transaction data for purposes of comparative indexing analysis
  • Analyzes client invoice data looking at customer’s product baskets, order patterns by product, and relative spend by product
  • Analyzes key predictors of price sensitivity including order frequencies, volumes, and repeatability
  • Assigns every customer to a market segment and customer size and/or sensitivity level; every product/service is assigned to a product/service family
  • Profiles every product/service for price sensitivity, at the segment level or at the customer-specific basket level
  • Analyzes distribution of many properties by customer and across groups of customers
  • Result: recommended price premium map to SKUs and vendors by individual customer or customer group

The SPA Pricing Cube™, our proven pricing analytics tool, is available in Silver, Gold, and Platinum levels to provide the right tool to match a company’s current pricing process sophistication and desired impact; we recommend starting with Silver. The following describes the difference in the various levels.

Silver

  • Architecture: Basic
  • Data Services: Basic Sensitivity Ratings
  • Pricing Structure: Basic Type-Size Values; and Constant Slopes and Premiums
  • Impact: Good – Estimated 1.0x (2% Gain)

Gold

  • Architecture: Intermediate
  • Data Services: Dynamic Sensitivity Ratings (more C/D revenue)
  • Pricing Structure: Differential Type-Size Values; and Dynamic Slopes and Premiums
  • Impact: Better – Estimated 1.5x (3% Gain)

Platinum

  • Architecture: Advanced
  • Data Services: Dynamic Sensitivity Ratings, Type- and Customer-Specific
  • Pricing Structure: Dynamic Type-Size Values and Dynamic Slopes and Premiums; Customer-Specific Sensitivity, Behavioral Scoring and Cost-to-Serve
  • Impact: Highest – Estimated 2.0x (4% Gain)

Click here for more information about capturing pricing opportunities and improving your bottom line using our proven processes and tools.

Click here for a quick questionnaire to determine the impact Strategic Pricing can have on your company’s bottom line.

SPA Events

Click here for other SPA Seminar dates and locations and click here for upcoming SPA webcasts.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can subscribe to our Strategic Pricing Pays blog or follow us on LinkedIn or on the following major social media channels and file sharing platforms: Twitter, Google+, Facebook, SlideShare, and YouTube.

We also encourage you to join the Strategic Pricing discussions in our LinkedIn group and to sign up to receive our Strategic Pricing Newsletter by clicking here.

You Can’t Cheerlead Your People to Pricing Success

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Read our article about the keys to getting your sales people on board with a proven process to drive your pricing plan forward.

Excerpts of the article follow.

“the deck is stacked against you from the start”

The sad truth is the deck is stacked against you from the start. Customers are constantly pushing backwards against your price. Sometimes this happens because the purchasing guy is classically trained to ask for a better deal. Other times long years of conditioning by our sales team has reinforced the behavior. The customer learns the lesson – ask and you shall receive.

Sales people are encouraged to build tight customer relationships. In the trenches, this translates to conflict avoidance at all costs. They believe it’s their duty to “cave in” to any enquiry about budgets or price with at the very minimum some type of nominal discount. No discussion of the value added by their company, no pushback with the price being fair for both companies, and no knowledge of the true market price is tossed out it’s; ask and you shall receive. They turn their eyes to the ground and say, “Hey let me see if I can come up with something a little better.”

“Flat rate pricing just won’t die”

Flat rate pricing just won’t die. Every company has some comfortable margin. If you don’t really know the real margin – just add some magical percentage. Let’s be specific; if you’re an electrical wholesaler you probably have hundreds of items marked up 20% gross margin every day. Every industry has a magic percentage like this. What makes it worse: only the person pricing the order knows your cost – certainly not the customer. Supply partners lament they can’t give their best distributors a higher gross margin because in a year they give the extra points away. Allowing the margin levels to drift back to very near that magical point.

Delusional thinking kicks in. Distributor salespeople will cross their hearts and swear they know the market. After all they have been in this industry for 10, 15 or 25 years, and their experiences give them some super human ability. We’ll drill into this in just a moment but for now let us propose an easy experiment for you to try. Print out your 50 highest selling items. Then ask your sales team to give you the market price for each. Our experience dictates, even your smartest guy will score a less than passing grade.

“You must have a real process to drive your pricing plan forward”

Your process must have documentation, training, measures and coaching points. Skip one of these and it’s not really a process. Pricing process is no different, except for on major point. The number of pricing permutations is enormous.

The typical distributor sells 10,000 SKU’s to 5,000 customers. Each and every customer – product interaction is a pricing permutation – 50 Million of them. Earlier we made reference to sales folk with super-human strengths; no normal person can keep track of that number in their head. Further, the number doesn’t lend itself to spreadsheets and other home-cooked plans. Nothing against your people, their skillsets or training; the number is just too big.

You need a powerful analytical tool. Something that harnesses the power of advanced proprietary algorithms with powerful hardware. Analytics become a cornerstone of your metrics and measuring points.

Click here to read the complete article.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can subscribe to our Strategic Pricing Pays blog or follow us on LinkedIn or on the following major social media channels and file sharing platforms: Twitter, Google+, Facebook, SlideShare, and YouTube.

We also encourage you to join the Strategic Pricing discussions in our LinkedIn group and to sign up to receive our Strategic Pricing Newsletter by clicking here.

Event Recap: SPA Strategic Pricing Conference in Las Vegas, NV May 1, 2014

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The following are highlights of an article authored by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales. He led a panel discussion at the last SPA Strategy Seminar and he has compiled a few highlights, comments, and data points shared by distribution and manufacturing leaders as well as industry experts for those of you that were not able to attend this informative event.

As a senior advisor to over 50 distribution companies, the Strategic Pricing Associates (SPA) Strategic Pricing events are eye opening and always give me pause.  Further, the no cost sessions are focused on distribution and manufacturing leaders’ concerns and conducted in a way that encourages networking.  If you haven’t been to one, I encourage you to do so.

Presentation: Market Trends in the Current Economic Environment

The following are some key insights for you to think about that were shared by Tom Gale, President of Gale Media and Publisher of Modern Distribution Management magazine, who shared data from the latest MDM/NetSuite Wholesale Distribution Outlook Report.

2014 appears to be shaping out as a pretty good year for distributors.  According to the survey respondents nearly 66% of the Distributors surveyed are optimistic about the coming year.  And, they are investing in technology.  The investments will rev up your own thoughts on this whole growth thing.

Other data points from the report:

    • 40.7% are investing in Customer Relationship Management (CRM) Systems
    • 40.1% are investing in E-Commerce
    • 29.7% are investing in Mobile Apps for Sales
    • 23.3% are investing in Pricing Process
    • 20.9% are investing in Cloud Computing (SaaS)
    • 15.7% are investing in EDI
    • 15.1% are investing in Demand Planning
    • 13.4% are investing in Warehouse Management Systems
    • 9.3% are investing in Finance/Accounting Software

If your competitors are laying out this kind of money, how will it impact your world?

Presentation: Driving Change that Matters in a Recovery Economy

David Bauders, President and Founder of Strategic Pricing Associates (SPA), made an offhand comment during his presentation that struck a chord with me.  As a matter of fact, it continued to resonate several days later as I was preparing this article and thought it was worthy of including. David went on to explain his comment:

“In pricing, you don’t have to be perfect to win…”

The SPA pricing process impact drives small slivers of gross margin improvement.  These come from products with less visibility in the market.  Sailing under the radar, obscure product categories sold to tiny and small customers can generate additional gross margin.  Many times the gross margin impact is upwards of 5, 6 or 7 points on affected revenues.  Because such products carry a true cost-to-serve that is relatively high (slower inventory turns, obscure vendors, less favorable terms, higher handling costs), it is not only feasible to price them at higher margins, it is necessary.

An effective pricing structure takes you away from the “cost plus” mentality.  Your company’s process begins to take things like hassles with an obscure supplier, time spent locating one time buys and non-stock/special order transaction costs into consideration.

Reports back from long-term SPA clients point to continued gains year over year as the management team continues to tweak and perfect their use of the pricing cube.  The leadership teams of the most successful SPA clients continue to define and reinforce the system year over year.  It’s a process and as the old saying goes, “Process is about progress not perfection.”

Panel Discussion: “Change Management and Sales Culture:  Execution on the Drivers that Matter”

Normally, the catch phrase is, “What happens in Vegas stays in Vegas.”  But this time, we thought we would share a few words of wisdom that were shared during one of the panel discussions at the event.  The panel consisted of executives from four high profile wholesalers representing the Electrical, HVAC, and Plumbing Supply industry.

SPA’s David Bauders posed a question to the group; here are comments in response to the following question:

What was pricing like in the days before SPA? 

“Conversations with a number of SPA clients in our industry completely dispelled nearly everything I believed about how pricing works.  One of the jokes in our market went like this:  If you need three quotes on a project, just call us three times.  Sadly, the joke was on us because it was mostly true.”

“During 2004 through 2006, pricing for us was just like the “wild west” with everybody doing their own thing and very little management involvement.  But, it was the good wild west because business was robust.  In 2008, we fell off a cliff and it really put the “hurt” on us.  When we started studying SPA it opened our eyes to what pricing could be.”

We left out the names of the companies in this article, but at the strategy seminar each of these panelists shared the wealth of their own experiences with the group as a whole and in a number of individual sidebars.  Once more going back to the panel discussion, here are comments in response to the following question:

How much real customer pushback did you encounter?

“We really can’t report any significant customer pushback, but we are constantly pushing our sales group.  We feel it is our job to support our sales effort.  The reasons we hear from our sales team comes from the heart and not from the head.  They have anecdotal what if stories, we provide them with real data and metrics.  They are coming along but the whole thing is a process with continual improvement from sales.”

“Our pushback was 100 to 1 from the internal folks…  The only times we have ever heard any issues from real customers was well into the system when managers became too aggressive in order to meet departmental goals.”

Click here to read the full article

SPA Events

Click here for other SPA Seminar dates and locations and click here for upcoming SPA webcasts.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can follow us on LinkedIn or on the following major social media channels and file sharing platforms: Twitter, Google+, Facebook, SlideShare, and YouTube.

We also encourage you to join the Strategic Pricing discussions in our LinkedIn group and to sign up to receive our Strategic Pricing Newsletter by clicking here.