Month: October 2014

Inside SPA > An Interview with Dolores Bauders

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Many people don’t realize there are two pricing experts at Strategic Pricing Associates named Bauders. Articles, videos, and promotional pieces often mention President David Bauders. Clients and associates of the SPA organization understand the work of Vice President and COO, Dolores Bauders. Only a few folks from outside this group have benefited from Dolores’ insights, until now. The following are excerpts from an interview of Dolores conducted by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales.

“I honestly cannot think of a single company that didn’t have some “Magic Gross Margin Percentage.””

According to Ms. Bauders, “Over the years our team has seen the price-related interworking of over 350 distributors. I honestly cannot think of a single company that didn’t have some “Magic Gross Margin Percentage.” It varies from company, sales cluster or branch office but some percentage – albeit 20, 25, 30 or something else – seems to raise its ugly head.”

The key to this phenomenon lies in either not trusting the “system price” or simply assuming that a 20 percent (or any other number) is standard in your market place. Often this magic number will be applied to all customers regardless of size of sale, business type or long term potential. As more distributors expand into adjoining spaces (electrical distributors into automation, power transmission distributors into motion control, fastener houses into mill supplies, and many more,) the opportunities for losing margin potential increases.

“Any logic around the magic gross margin percentage brakes down when you consider a couple of points.”

First, when competing against a distributor selling another manufacturer’s product, the distributor buy price is rarely the same. Most of these supply partners are aware of the end user, OEM and Contractor price levels of their competition, sometimes they even try to match the competitor’s level. But with countless variations in channel philosophies at the supplier level, the chance of competing wholesalers receiving exactly the same cost is close to zero.

When the product in question comes to competing distributors from the same supplier, the magic gross margin percentage still breaks down. Here’s an insight from Ms. Bauders: “We work with both manufacturers and distributors. In our work, we observe the same types of scatter plots on pricing levels coming from companies on the manufacturing side of the channel. The pricing level to distributors varies just like the pricing level distributors offer to their own customers. Mark-up pricing using a magic gross margin percentage doesn’t reflect reality.”

Perhaps this point illustrates the concerns many manufacturer sales managers have with providing significant “in-to-stock” prices for distributors. Countless managers have shared their private concerns that special prices awarded to distributors end up being sacrificed to the market because of poor pricing practices.

“which is better mark-up or discount pricing”

Attend any distributor association meeting and you are likely to overhear discussions around one of the longest running industry debates; which is better mark-up or discount pricing…

“The whole mark-up versus discounting issue has become a bit of a company culture issue. We see both types of wholesalers. There’s no real rhyme or reason to how they sort out. Both types are found in every line of trade. But, as a group, the discounters typically end up being more profitable. The cool thing is our process helps both kinds of companies generate higher gross margin dollars.”

Overcoming cultural issues is a critical component of establishing a new process. We asked Ms. Bauders to give us her prospective on what it takes to bring companies from either side of this cultural divide onto the Strategic Pricing Associates process. She commented, “We have been part of hundreds of process journeys. We’ve learned to tailor our approach to the culture of the organization. We’re talking subtle differences, but the little stuff counts in building confidence, comfort and ultimately results.”

Click here to read the complete interview.

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.

The List Price Question – Is it possible to charge more than list price?

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Read our article about the keys to implementing profitable pricing practices with respect to setting list prices and how sale people avoid asking for list or more when it is justified by the amount of services provided with a given product. Excerpts of the article authored by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales follow.

“salespeople believe list price is that artificially high number which is used as a marker for future discounts”

Many salespeople believe list price is that artificially high number which is used as a marker for future discounts. In their minds, it is an unnatural sin to sell anything to anybody for “list”.

Part of this attitude and philosophy comes from daily life. For instance, “Nobody pays sticker price for their new Ford and no real customer pays list for their supplies in our industry” can be heard echoing through sales bullpens.

But the story doesn’t really hold up well. For example, car dealerships have regularly charged more than sticker for hard to find or limited production vehicles. Toyota dealers still stick to the manufacturer’s sticker price on most of their line-up.

“SPA’s team regularly identifies hundreds of products which should/could be sold at prices greater than list.”

I recently had a conversation on the list price topic with distribution pricing expert David Bauders of Strategic Pricing Associates. Using their years of pricing expertise and a sophisticated algorithm, SPA’s team regularly identifies hundreds of products which should/could be sold at prices greater than list. Further, his clients have successfully implemented strategies which scientifically direct the list (and greater) concept. Let’s explore the situation.

“Broken cases are sold purely as a customer convenience. Distributors who apply the normal pricing to single items lose money on the transaction.”

Some products are meant to be purchased by the case, carton or pallet-load. They are designed for large “wholesale” orders, but a good many customers only need one or two at a time. They ask you to break the carton, split the quantity, repackage the product and sell it to them in the smaller number needed to match their immediate needs. List price levels set by the manufacturer are defined by the case quantity.

Broken cases are sold purely as a customer convenience. Distributors who apply the normal pricing to single items lose money on the transaction. Not only does the gross margin generated by the sale not cover the cost of a sales transaction (inside sales time, invoice costs, and sales expenses), the transaction generates extra costs for things like repackaging, manual processing (because the bar code is on the case) and potential issues with lost products down the road in the warehouse.

Sometimes, orders require massive amounts of engineering/specialist involvement. Support time is consumed answering dozens of pointless questions on the front end and constant babysitting throughout the production.”

Distributors have vendors (I won’t call them supply partners) who are difficult. They insist on terms and conditions which always put the distributor at risk. Sometimes, orders require massive amounts of engineering/specialist involvement. Support time is consumed answering dozens of pointless questions on the front end and constant babysitting throughout the production.

Thankfully, these aren’t our bread and butter suppliers. Whenever possible we direct customers to other manufacturers. But for a number of reasons, the customer either chooses to use the product or must use it based on the dictates of the MRO environment.

“distributors are better equipped for finding hard to get items than their customers. But, the distributor needs to get paid along the way.”

Customers are leaning down their operations. Every purchasing department worth its salt used to have a clerical person trained on the use of the Thomas Register. When a specialty machine imported from Lower Transylvania needed fixing, this person spent entire days on the phone tracking down a catalog (often not in English), deciphering the numbering system, staring at drawings and bouncing back and forth between the maintenance and procurement departments.

Guess what? Today the customer has a much more efficient solution. And, it’s not the internet. They simply call their friendly neighborhood distributor customer service group and let somebody else do the work.

“Distributors do a poor job of measuring profit contribution by customer.”

All of these lead to a massive profit giveaway. Distributors do a poor job of measuring profit contribution by customer. But experts agree; less than half of our customers actually make us money and the rest are charity cases. We are taking from good customers and making handouts to the rest.

Bauders’ Strategic Pricing Associates does statistical graphs by product showing the pricing spread of products. Tiny customers, placing miniscule orders get pricing levels equal to or better than the largest accounts. Measuring the impact of transactional costs, some of these folks are charity cases, living off the profits made from their larger brethren. This is a gap that must be fixed but it’s not easy to spot.

The issue of identifying the costly issues of pricing can best be understood by revisiting a conversation I had with my boss back in 1991. We were talking about margin erosion (even then it was an issue). He suggested putting orders into a spreadsheet and sorting them by size and gross margin. He said, “You don’t have time to look at everything, so examine the biggest opportunities.” And I believe this is the root of the problem. The average distributor has hundreds of thousands (Millions?) of transactions each year. It’s humanly impossible to plan, measure and gage each of these. The biggest ones get handled, the rest are shoved to the side. And, here’s where SPA comes in.

“a great deal of the profit improvement comes from tiny and small customers who are brought typically brought under control first.”

In research surrounding the over 350 distributors who are using SPA’s process, I have discovered a great deal of the profit improvement comes from tiny and small customers who are brought typically brought under control first. Many of these accounts must pay “list price” on the categories of products defined above because they lack the size to offset the transactional costs via their other purchases.

But the SPA process does not just segment distributor customers. An additional segmentation takes place with vendors. Identified by the distributor, product lines falling into the categories described are earmarked for margins levels which provide a fair return for the efforts of the distributor’s sales and support teams.

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.

Why Do We Exist?

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Read our article about the keys to managing sales team behavior with respect to situations where a sales person takes a course of action that favors their customer at the expense of their employer. 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 customer-facing people in our industry don’t fit the mold – they shy from the very thought of being a sales person. Instead they dedicate themselves to helping customers solve problems.” 

Because some our best sales people morph into agents for their customers, their loyalties shift from parent company to loyalty to the customers. And even though, some who profess to be sales experts will encourage this type of behavior, a danger looms in the background.

After in-depth interviews with hundreds of distributor salespeople, we have observed a growing trend. Situations abound where the sales person takes a course of action that favors their customer at the expense of their employer.

Somehow we need to explain this “bigger mission” to our people. And here is why…”

Failure to provide this message to your customer-facing sales team members puts them into the position of Robin Hood. Let’s shy away from dollars and cents and instead talk about the value-based services you provide. Diverting a little extra value to the customer, in the form of training, troubleshooting aid, demo unit time or extended terms, doesn’t hurt anyone – right? Well, it does. All of these have a value; they cost your company money. But most of these good folks can justify their actions because it’s not really stealing – money. And, these people really are customers of some kind, even if they don’t really contribute profits to the bottom line.

Beyond the valuable resources already mentioned, we must understand the natural psychological phenomenon surrounding efforts to improve margins. The concept of price sensitivity doesn’t play well when you face the dilemma of deciding who gets a discount and who pays full price. Without some kind of pricing process and ongoing value-metric training, charging one person more than another seems immoral.

“The Process of Getting Paid for What You Do

Building a real pricing process – with expert analytics, training, and metrics – is a critical part of your business success. First, a pricing process simplifies the decision-making process. Instead of asking your sales team to guess the optimal prices of thousands of products being sold to thousands of customers (millions of possible combinations!), you pursue a different path. The path to pricing excellence. Customer types are defined, market pricing levels are expertly determined and loaded into the business system, and exceptions to the system are carefully documented. Adherence to the process is measured and coached on an ongoing basis. To illustrate, let’s look at a couple of examples that occur on an ongoing basis.

Applying a pricing process makes everyone’s job easier. It takes away a whole lot of the psychological self-doubt and pulls your salespeople out of the Robin Hood syndrome. David Bauders, the founder of Strategic Pricing Associates, together with his colleagues, has built a pricing process that combines world-class analytics that determine optimal prices that balance competitiveness with profitability.

 

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.

Inside SPA > Our Approach

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Strategic Pricing Associates’ approach to strategic pricing projects is to teach you how to leverage your data and manage your pricing effectively to dramatically increase the value of your company through implementing a proven strategy that includes pricing excellence best practices.

SPA - strategy management and processThe majority of companies fail to take the initiative to plan the management of their pricing. Most make their pricing decisions based on their competition and their customers’ reactions. Often, they lose their ability to control pricing and they undermine their business through chaotic discounting, rebating and by offering “bargains” that actually educate their customers to want more for lower prices.

Strategic Pricing Associates helps you build pricing integrity by teaching you to be proactive and manage the pricing in your markets.

Our process is data-driven. We will work with you to segment your customer base, analyze your invoice data, and identify opportunities to build a pricing architecture, in your existing enterprise system, that reduces wasteful discounting and captures price premiums from less sensitive customers and products, services or rentals. We measure the pricing performance of customers, products, sales reps, branches, and other management dimensions. Your invoice data contain a wealth of insights into how to increase your return on investment. We have the analytical and process expertise to help you increase your profit quickly.

Our process is efficient. Working with your management team, over three months and two web-based training sessions we can help you capture increased profits of two or more margin points. Your team will gain confidence and knowledge to maximize the profitability of your business.

Epicor Customers—Learn about the new add-on Strategic Pricing Module and related data services to fast track dramatic margin improvements.

Learn more about SPA’s strategy, process and management.

Click here to read our customer’s testimonials.

Click here to read our customer case studies.

SPA Events

Seminars are scheduled throughout the year, in cities in North American, South American and Europe. They are generally one day in length, and are scheduled on Fridays, allowing you to return home or enjoy an extended weekend. Learn more about dates, locations and topics.

Click to view a recent SPA Seminar Agenda

Click to read a recap of a recent SPA Strategy Seminar

Webcasts are focused, one-hour sessions that explore specific areas of Strategic Pricing.

These webcasts draw on SPA’s experience working with hundreds of companies to drive 2-4 margin point improvements on affected revenue with minimal customer pushback.

Click on a link below for details and to register for an upcoming webcast.

Tuesday, October 14, 2014 at 2:00pm EST

Tuesday, November 18, 2014 at 2:00pm EST

Tuesday, December 9, 2014 at 2:00pm EST

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.