Read an article that highlights how important it is for distributors to realize the power of a solid, scientific pricing process that will stop unnecessary discounting by sales people. Excerpts of the article authored by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales follow.
“a good pricing process delivers to the bottom line.”
I talk about the power of a solid, scientific pricing process in every presentation I deliver. Why? Because a good pricing process delivers to the bottom line. My clients experience better return (ROI) from money spent on pricing than any other investment; but that’s not the story here.
“Our customers are tight with their money.”
As I talked about best in practice pricing strategies, I could see old Joe’s face get stiff. His body was rigid, he crossed his arms and this person, who was so friendly, went from receptive to closed. I would have been blind to not see it. Furthermore, I was 100 percent certain everyone else in the room was feeling the bad vibe as well.
Sensing I was about to “lose the room” I asked Joe his opinion on pricing strategy. Joe shrugged and said, “From where I sit, standardized pricing, or whatever you want to call it, is destined for failure in our business. Our customers are tight with their money. They don’t want to pay more, they want to pay less”.
“repair parts were not price sensitive; especially when the customer is trying to hold out on replacing a whole system.”
Going around the room, the group largely agreed with Joe with a couple of notable exceptions. One salesperson noted that some customers are willing to pay more when the product is in stock. Another guy stated repair parts were not price sensitive; especially when the customer is trying to hold out on replacing a whole system. Within a few minutes, we had a dozen or so examples of times where a “standard” price would work. Everyone was on board, but Old Joe looked shaky. I knew we needed to talk.
“they hint that the price is a little more than they thought, and the price drops again”
How has Joe conditioned his customers? They ask once and he caves in. Next go around, they hint that the price is a little more than they thought, and the price drops again. After a couple of go-arounds with the Joes of the world, customers think haggling is part of the deal. Just like a trip to the flea market, except with top notch products and world class service.
After two decades in the business, Joe has conditioned his customers and convinced himself. But hope exists. Little by little, Joe’s company is setting limitations on precisely which product prices can be over ridden without management approval. For example, exclusive product lines are no longer negotiable. The same applies to products where the company carries deep stocks of repair parts.
“to build a real pricing process, a distributor needs advanced analytics, solid documentation, training and a means to measure and manage”
The idea of improving distributor gross margins has been around for a very long time. One of the very first training sessions I attended as a fresh young branch manager 25 years ago covered “the power of one.” Remembering back, the half-day session included the massive impact one measly percent in gross margin had on a distributors bottom line. There was no how to except to cheerlead your team to higher margins but putting up posters and continually reminding everyone of “the power of one.” The plan flopped only to be replaced with a dozen more pricing fads.
In order to build a real pricing process, a distributor needs advanced analytics, solid documentation, training and a means to measure and manage their team. Very few distributors (read that almost none of them) have the expertise to do this alone. Joe’s company tried and missed the mark, and the road to pricing success is littered with other distributors in the same situation.
Click here to read the complete article.
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