SPASigma Featured in The Distributor Channel article “The Dog Ate My Customer List (and other Excuses from the Sales Department)”
SPASigma was featured in a recent The Distributor Channel article, “The Dog Ate My Customer List (and other Excuses from the Sales Department)”, which discusses how many organizations’ sales people – “Simply stated, distributors are giving away money by the bushel”.
“I Know the Market and This Won’t Work- Pricing Process“
During in-depth interviews with dozens of distributors who have instituted successful pricing processes, the story always comes back the same. They experience very little, if any push-back from customers, but they get plenty of push-back from their team.
The excuses are so predicable, I can almost mouth the words. “This pricing stuff works in big cities/small towns/west coast/east coast/ anywhere but here. Our customers will react negatively. They will immediately recognize we are gouging them. And the competition will have a field day.” When all else fails, the sales guy will look their boss in the eye and say, “I’m paid on gross margin, I’m doing everything in my power to maximize that gross margin. Don’t you trust me?”
“Simply stated, distributors are giving away money by the bushel“
David Bauders’ team at Strategic Pricing Associates has developed some powerful tools to analyze price data. In an interview with him sometime ago, David produced dozens of analytical graphs showing market price, order size and product discounts. Amazingly, they all looked the same. Customers making very small purchases are getting price levels well below the natural market. Simply stated, distributors are giving away money by the bushel.
“a simple test to determine if a distributor’s team actually understands market pricing“
David recommends a simple test to determine if a distributor’s team actually understands market pricing. He takes the top 20 SKUs from a company and asks the sales team to provide a best estimate of the market price. Fewer than 25 percent of the sales team gets anywhere near a passing grade. The guys who claim to be maximizing your margin can’t.
There are some root causes to this whole issue with pricing. First, most distributor salespeople really do believe they understand the market. The question becomes, where do they get their information?
“in our world, customers have been trained to mislead us on pricing.”
Let’s face it, in our world, customers have been trained to mislead us on pricing. When was the last time somebody said, “Wait a minute, Jim, your price is too low?” Purchasing departments see their role as trimming just a few percentage points off of the buy price. Their goal is the best service at the lowest price. Secondly, most customers really are nice folks. Rather than tell us our service is rotten or we lack the follow through required to earn their business, they let us down gently with a well-placed, “It looks like your price didn’t line up this time.”
What’s a mother to do? We believe that using a scientifically driven analytic tool will begin to give you an idea of your company’s pricing in the market. On top of that, pricing process metrics allow the manager to measure, coach and enforce a process that adds significantly to the overall bottom line.
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