Month: April 2015

Webcast: How to Improve Sales People’s Confidence in your List Prices

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During this 60-minute webcast SPA client, Trade Supply Group, will share their experiences and advice. You will gain a wealth of practical knowledge to stop margin erosion by improving your sales people’s confidence in your list prices!

Program Description

Register to attend our webcast May 6, 2015 that starts at 2:00 PM EST Nick Aversano, Director of Systems and Operations for Trade Supply Group, will share their journey to pricing excellence and how they are leveraging science-based strategic pricing tools to improve their sales people’s confidence in their list prices.

To implement a solution that enhanced profitability, developed pricing discipline, and removed emotion from the pricing function, they turned to SPA to implement a proven strategic pricing initiative founded on SPA’s powerful pricing analytics tools. During this 60-minute webcast, they will share their experiences and advice that will provide you with a wealth of practical knowledge including their fast ROI and lessons learned!

“Strategic Pricing Associates revolutionized the way our organization approaches pricing, providing an exceptional tool with which to manage this critical profit lever.”

– Nick Aversano, Director of Systems and Operations

Click here to read more SPA Client Testimonials

SPA’s Dave Lienert will also discuss how our solutions, which leverage experience from working with hundreds of companies to drive 2-4 margin point gains on affected revenue with minimal customer pushback, can help your company.

Attendees will learn how to address the following 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

This webcast draws on SPA’s experience working with hundreds of companies to drive pricing gains of 2-4 margin points on affected revenue with minimal customer pushback.

Click here to Register

Other SPA Events

Click here for other SPA event dates and times. Sign in or click here to register on our website to view our library of past webinars which covers a variety of strategic pricing topics.

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.

Making Money with Small Customers: Defeating the Profit Drag

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When managed properly, small customers can be served profitably. Read excerpts of an article authored by SPA President, David Bauder, that was published in Modern Distribution Management. The article focuses on how important it is for distributors to use a scientific pricing process to make sure small accounts are priced at reasonable premiums to offset their higher costs to serve.  

“They treat the bottom tier as if it were nonexistent, not worth understanding, not worth managing.”

Small customers are an important source for learning how to serve myriad market needs. They diversify the customer base (and associated risks of customer concentration) and, in aggregate, improve pricing leverage with more powerful customers and vendors. They also can represent a leading indicator of a company’s sales and marketing vitality, its operational capabilities and, more fundamentally, the validity of a company’s value proposition and competitive positioning. A healthy business will likely have a continuous flow of small customers. It’s exciting, at a gut level, to attract new small customers.

So, why do so many executives feel ambivalent about small customers? If you ask them to describe their customer base, they almost always start off by using the 80/20 rule and tell you about everyone in the top 80 percent and nothing about those in the bottom 20 percent. They treat the bottom tier as if it were nonexistent, not worth understanding, not worth managing.

“Sales reps often misunderstand the true potential of small accounts, labeling them “high potential.”

Sales reps often misunderstand the true potential of small accounts, labeling them “high potential.” SPA’s research shows that in any given year, 93 percent of accounts stay in the same size class the following year. Furthermore, 97.5 percent of small accounts in any given year remain small the next year; 4 percent move up one quintile; 1 percent move up two quintiles; 0 percent move up three or four quintiles.

The upward mobility statistics are modest but better for other customer size quintiles. The biggest opportunities seem to be concentrated in retaining and/or expanding the loyalty of the next two quintiles up in size; in these groups, there is a 30 to 40 percent probability that they will shrink by one or two quintiles from one year to the next. Sales efforts should be prioritized accordingly.

“30 percent of small customers in any given year pay below-market price for their basket of products. ”

The tendency of small customers to receive lower prices cannot be overstated and shouldn’t be ignored. SPA’s research shows that 30 percent of small customers in any given year are paying below-market price for their basket of products, reducing overall margins by 3.5 percent to 5.5 percent. To measure the margin impact, we compare actual margin to what it would have been if customers had paid true market price and/or size-adjusted market pricing.

Small customers often get lower prices for several reasons. First, the small dollar impact of large pricing concessions to small customers doesn’t trigger the financial alarm bells that would result if the same percentage concessions were given to larger customers. This is called financial death by a thousand small price cuts.

“Most importantly, make sure small accounts are priced at reasonable premiums to offset their higher costs to serve.”

The key to happiness with small customers is complex yet simple. Refrain from exerting scarce organizational resources on small accounts that have little or no potential growth rates. Point them to methods of service (inside sales, e-commerce, etc.) and vendors that are appropriate to the size of the opportunity. Incent the sales team to reduce churn rates for mid-size accounts and to identify and deliver profitable small accounts.

Most importantly, make sure small accounts are priced at reasonable premiums to offset their higher costs to serve. Make sure the pricing process and tools reliably produce this outcome.

Click here to read the complete article. [a subscription is required]

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.

In Search of the Magic Number

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Read an article that highlights how important it is for distributors to implement a scientific pricing process that gives sales people confidence in the prices they quote and the tools to justify premium prices to the right customers. Excerpts of the article authored by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales follow.

“I typically begin my work by searching for the magic number.”

In amongst the normal stuff occupying my inbox was a fresh set of data from a new client. In an effort to better know my clients, I often ask for several months’ billing laid out by product, salesperson sale price and gross margin. This data allows me to surgically peer into the distributor. Based on the turnaround time, I can gage distributor’s capacity for generating analytic data; I love when data can be set into spreadsheets quickly and easily. Most importantly, it exposes an unadorned view the distributor’s sales effort.

Opening the spreadsheet and giving the whole thing a once over for data errors, poor descriptions and rows filled with unreadable characters, I typically begin my work by searching for the magic number. What I have discovered is simple; most distributor sales teams somehow settle on a comfortable margin for orders where they lack solid pricing information.

Using the power of Excel, I quickly build a formula to determine gross margin percentage, copy it throughout the sheet then sort the data. Scanning through the spreadsheet, I quickly notice a couple of noteworthy trends. The first third or so gross margin percentages are relatively random; a few transactions in the single digits, many more in the teens. Then the magic number hits; row after row, page upon page of margins set at precisely 20 percent literally jump off the screen. Pushing on, I notice a number of random orders set at higher margins with the whole thing ending in a flurry of 35 percent margins. Could this be another magic number?

“I don’t believe the magic number necessarily reflects the market price for all of these products.”

Let’s make an assumption. I don’t believe the magic number necessarily reflects the market price for all of these products. First, my review indicates products from a wide variety of suppliers all carry the same magic cost up margin. Secondly, the products represent a diverse groups of technologies. Juxtaposed, the suppliers originate from a wide range of industries; one might wonder how they arrived upon the same pricing structure. And finally, the customer list points to customers scattered across a wide region representing a couple of states, rural and urban locals and various sizes of companies.

How is it possible that such a wide variety of customers, suppliers and market conditions could have so easily settled on cost plus 20? Simply thinking about the supplier side of this, what are the chances every distributor received the same pricing from a wide variety of suppliers? Today’s channel landscape is a patchwork quilt of programs. Sometimes driven by competitive situations, other times through tiered distribution systems and special into stock deals, rarely does every distributor have exactly the same price.

Looking at the magic number, one quickly concludes there is no magic.

“The wide-scale employment of computers gave birth to Magic Numbers.”

Throughout the 1990s and into the turn of the Twenty-first Century, most distributors struggled to maintain the quality of prices shown on their order entry screens. To give you an indication, the term “price not maintained” became a common message within customer service groups. Simply put, this meant the suggested prices displayed on the ERP system were not to be trusted. Sellers were forced to determine their own pricing strategy. These broke down to one or more of the following:

  • Manually look up the price using the old paper method – which was time consuming.
  • Establish pricing based on the history or last sale of the item – but sometimes there was no real pricing history.
  • Use a margin they felt reflected the market price – often soliciting guidance from a more experienced seller.

Over time, safe margins developed. As in, if you don’t know where to price an item use cost plus 20 percent. With time and without research or much real thought, these numbers were held to be the actual market price. Add new sellers who mostly lacked formalized price training and the number proliferated.

Today, some distributors will attest to the numbers being passed down on stone tablets from a high.

“Mostly, magic numbers give away margin.”

In this particular case, let me ask this question. Why 20 percent, as opposed to 21, 22, or maybe even 22.5 percent? Pushing even further, does it really make sense to tie anything to your cost? Many distributors find themselves paying for inbound freight on at least some of their product lines. Is freight considered before or after adding the magic percentage number? And what about special deals? Distributor management teams work like crazy to boost profitability with special into stock prices. But as quickly as extra profits are created on one end, guys armed with a magic number give the potential profit away with sloppy pricing.

If all this doesn’t scare you, consider this point. The magic numbers used across entire lines of wholesale trade are tracking downwards. Who’s ever heard the comment, “Your price is too low”? Every time an order is lost at the magic number level, at least someone wonders if they should use cost plus a new (and lower) magic number. We believe this line of reasoning is ruinous to an otherwise healthy distribution business.

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.