Read our article about how important it is for your sales teams to be able to effectively communicate the unique value of your products’ and services offerings. This is key to capturing price premiums and is core to an effective strategic pricing process. Excerpts of the article authored by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales follow.
The resource you provide for customers are your competitive advantage.
Honestly, most distributor managers never make an effort to catalog and cross compile their advantages against the competition, but they should. It’s important.
When pricing differences arise, your seller has a split second to challenge the lower price of the competitor by listing off the competitive advantage you provide.
If practiced, they can deflect a good many price concession requests. If unpracticed or, as is many time the case, unaware of their competitive edges, the stammer and say something like, “Let me revisit the price again.” In worst case scenarios, salespeople immediately cave knocking four, five or more percent off the price.
So how does a company control the pricing process?
Create a matrix of products and services you provide…evaluate your competitors against this list.
Take away the salesperson’s ability to quickly cave to discounting requests. Set up an approval chain for all discounting.
Apply a scientific process for matching gross margin to customer value…”Matrix Pricing” goes back several decades. The problem with the concept is its overwhelming complexity.
Build a mechanism for measuring sales performance against use of the optimized system pricing. A “Ratio of Attainment” indicates the percentage of transactions where price is discounted from the system norm.
What happens when these steps are followed?
After a number of in depth interviews with clients using the process provided by Strategic Pricing Associates (SPA), some natural conclusions can be made. SPA driven distributors typically are adding two full points of gross margin to their business results.
Ponder this. Two points of additional margin provides a massive impact to the distributor’s bottom line. Because margin increases largely fall straight with no extra incurred costs for expanded warehouses, delivery vehicles or new personnel, the distributor reaps huge benefits.
Click here to read the complete article.
SPA is the leading provider of pricing analytics to complex companies of all types: manufacturing, distribution, equipment, services, and software/technology products. Since 1993, we’ve built a strong platform of proprietary analytics to quickly and efficiently help companies convert their own invoice data into pricing architectures that maximize their pricing performance and competitive position. Our typical client applies our pricing architecture and improves profitability by two to four percent of sales: $2 to $4 million per $100 million of affected revenue. The benefits are staggering; and they are typically accomplished in less than 90 days.
SPA Clients include over 200 manufacturing companies including Parker Hannifin, Rockwell,GE, Exxon Mobil, Caterpillar as well as over 400 distributors including Harry Cooper Supply Company, Industrial Distribution Group, AH Harris, and ThermoFisher Scientific. Click here to read SPA Client Testimonials.
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