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SPA Featured in The Distributor Channel article “Every Silver Cloud has a Dark Lining: Things to Consider in a Growth Economy”

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SPA was featured in a recent The Distributor Channel article, “Every Silver Cloud has a Dark Lining: Things to Consider in a Growth Economy”, which discusses the fact that a strong economic growth business environment can “distract from strategic thought” and why a solid pricing process is an essential part of any strategic initiative.

Excerpts of the article follow.

“Every Silver Cloud has a Dark Lining”

Not to be a perennial bummer, but all this growth stuff presents a few issues for distributors.  For the next couple of weeks we will explore issues tied to operating in a good economic times.  So, without further ado, let’s explore the dark lining in what most view as a silver cloud.

“Issue One: Brisk Business Masks Process Breakdowns”

Surging sales provides stealth cover for many problems.  You lose market share, but since the numbers are looking good you don’t notice competitors poaching business from some of your accounts.  Mediocre sellers post growth dollars and their lack of skills go unnoticed.   Sellers announce they are too busy for CRM data input.  Warehouses get dirty, shelves get cluttered.  Customer returns languish for months before suppliers are notified and credit received.

“Issue Two:  Great Business Climates Distract from Strategic Thought”

Without the right kind of discipline, distributor types find themselves consumed by urgent issues and procrastinate strategically critical issues.  It feels good to be busy and even better when busy is tied to the instant gratification of big business.  But our world is changing… Actually spinning faster than ever before.  Investing in strategic issues during good times is more important during upticks in the economy.  Experience dictates, those with solid strategy go into recession better positioned and rise faster with the next upturn.  Let’s think of strategically important topics.

“I believe a solid pricing process is an essential part of any strategic initiative.  There’s three big reasons why:”

> Pricing Process drives bottom line results.  The typical distributor using David Bauders’ Strategic Pricing Associates improves gross margin by two points.  In some industries, this nearly doubles the bottom line results.  For most distributors the gain is still in the 50 percent range.  You can’t ignore this size of an increase.

> Company value is dramatically improved.  Distributor businesses are valued on a multiple of bottom line profits before tax and interest (EBITA).  Here’s a simplified example of how it works.  A company putting $1M to the bottom line could be valued at 6 times earnings or $6M.  That company increases the bottom line via pricing by 50 percent to $1.5M.  Using the same formula, the company is now valued at $9M.  Further, our research indicates companies with higher performance than industry norms often attract a higher multiple of earnings.  So, the process may actually improve the value substantially more think multiple of 8, which means a value of $12M.  Yep, pretty strategic.

> Processes in the sales department tend to interact.  Building a credible pricing process requires detailed customer and supplier segmentation; marketing improves.  Salespeople are forced to think more critically about the customers they invest time with.  Targeting improves.  And, sales teams with well-developed targets are 47 percent more effective in reaching their goals

Click here to read the complete article.

 

Upcoming SPA Events

Set You and Your Team Up to Win Better Agreements at Battle For Margin

Your organization’s profits depend on the individual and collective negotiation skill of your employees – from sales to purchasing. The Battle for Margin negotiation intensive is a rare opportunity to dive deeper into negotiation strategy that will immediately drive for more profitable agreements. Don’t you and your team deserve to be set up for success? Don’t miss the Battle for Margin.

It will be held June 8-9 at the Mandarin Oriental in Las Vegas, NV.

Get negotiation intelligence you’ll find nowhere else:

Revolutionize how you and your team view negotiation. Give your organization the tools and knowledge to drive more profit than ever before with compelling and eye-opening case studies, critiques, and group exercises. Instill knowledge fast. The day will fly by because our seminars are purposefully entertaining and educational; people learn more when they’re having fun.

Attendee Testimonials

Here what our clients have to say about the power of strategic pricing tools from SPASigma Negotiation Training Seminars.

“SPASIGMA breaks the standard mold of slow pace seminars. It’s engaging, fun, and interactive in a setting that feels warm and comfortable.”

     — Mitch Koepp, Marketing Manager, All World Machinery

Other SPA Events

Click here for other SPA event dates and times including our upcoming webcasts.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can 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.

10 Buyer Negotiation Tactics to Lower Price Points

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spasigma-blog-10-buyer-neg

Negotiation is a dance. To have it go smoothly, you must be ultra-attentive to your own actions and the actions of your partner. Even the slightest, unexpected move can create a better – or worse – outcome. That’s why we’ve built negotiation tactics around the smartest actions. Here are 10:

1. Anchor them. State your very best price. When you establish your price point, you influence expectation. We tend to expect the first position we hear.

2. Throw junk. Point out negatives about whatever it is they’re trying to sell. You want to make your negotiation partner questions his or her price point.  Before beginning negotiations, collect junk by asking internal stakeholders about their overall satisfaction with the vendor. Did they deliver on time? Was their customer service acceptable? Did they honor the fine print?

3. Woo them. With every bit of junk you throw, be sure to give them a positive statement, such as “We really want to make this work,” or “We really want to do business with you.”

You want to minimize conflict and open the party up to new ideas like a lower price.

Click here to access the full list and to learn more about SPASigma’s negotiation training.

 

SPA Events

Click here for upcoming SPA event dates such as our next Battle for Margin June 8-9 in Las Vegas, NV and dates/times for our upcoming webcasts.

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.

 

Six Sigma Pricing > Control: Set and Enforce Pricing Authority Levels and Repeat Previous Steps

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This is the final article in our six part blog series on how manufacturers and distributors can apply Six Sigma methodology to the pricing function to generate repeatable margin gains. This blog covers the importance of setting and enforcing pricing authority levels and repeat previous steps as continuous improvement never stops.

spa-6-sigma-pricing-ppt-slide-image

As a quick review, here is the Six Sigma Process as described by Wikipedia:

“Six Sigma seeks to improve the quality output of process by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management methods, mainly empirical, statistical methods, and creates a special infrastructure of people within the organization (“Champions”, “Black Belts”, “Green Belts”, “Yellow Belts”, etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified value targets, for example: reduce process cycle time, reduce pollution, reduce costs, increase customer satisfaction, and increase profits.”

As we covered in our last article on this topic, it is crucial that you build processes, systems and tools to assist teams and create reporting tools to track improvements and implement real-time visibility into business processes defects to ensure you are focusing your improvement efforts in the right areas.

In the Control phase, our job is to make sure the improvements we have put in place – stay in place. To achieve this you want to chart performance against upper and lower control limits. Run charts show single values plotted over time and indicate trends of process & shifts in process performance.

The key to success it to continuously monitor performance and measure against the control limits via Control Charts which allows you to:

  1. Study process variation over time
  2. Monitor and improve process performance
  3. Maintain “In-Control” processes

Additional benefits of The Six Sigma Pricing Control phase include:

  • Developing an effective “Control Plan Audit Process”
  • Identifying opportunities for improvement in processes, tools, and or behavior
  • Establish a “Pricing Authority Matrix”
  • Develop “Profitability Improvement Plans” for every customer
  • Developing Change Management strategies and plans

The following are the five areas we covered in this blog series that will helped demonstrate a proven pa to Six Sigma Pricing Excellence and links to additional blogs and other content.

  1. Define: set roles, responsibilities, and goals for the team in alignment within the business
  2. Measure: build correct measurements and incentives for each person
  3. Analyze: use reporting tools to find opportunities to grow or challenges to fix
  4. Improve: build processes, systems and tools to assist teams and create reporting tools to track improvements
  5. Control: set and enforce pricing authority levels and repeat previous steps as continuous improvement never stops

Six Sigma Pricing related articles:

Six Sigma Program Overview

Six Sigma Master Blackbelt Greg Preuer, of SPA has created the first course designed to apply time tested Six Sigma methodology to pricing.  Those who study with Greg will learn not only how to drive the pricing process but how to sustain the gains and automate the process.  They will become Six Sigma experts (Blackbelt) in business process with a focus placed squarely on price management.

“Over time we discovered the most critical part of moving the pricing process forward came in helping people deal with change. Establishing a plan for the human reaction to all change is incredibly important.”

– Greg Preuer

Graduates from this course will learn to chart a clear path to pricing improvement.  They will learn each of the following steps:

  • How to design and design goals which are consistent with their company’s pricing strategy.
  • How to measure and identify characteristics critical for pricing success.
  • How to analyze the current situation and steps along the way.
  • How to design an improved alternative which moves closer to the desired result.
  • How to verify that actions taken create the right results.

A Pricing Process founded on SPA’s Six Sigma Program includes the following:

  • Negotiating strategy and tactics
  • Value-based pricing
  • Automated decision making tools
  • Customer Profitability improvement plans
  • Sales team selling value
  • Pricing strategy and leadership
  • Consistent and fair pricing architecture
  • 2 to 4% growth in GM%
  • Pricing based on customer sensitivity
  • Continuous improvement focus

To learn how you can realize the benefits of SixSigma Pricing, contact SPA today at info@strategicpricing.com or 216.455.1545.

 

SPA Events

Click here for other SPA event dates and times including our upcoming webcasts.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can 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.

SPASigma Featured in The Distributor Channel article “The Dog Ate My Customer List (and other Excuses from the Sales Department)”

Posted on Updated on

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”.

Excerpts of the article follow.

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.

Click here to read the complete article.

 

Upcoming SPA Events

Set You and Your Team Up to Win Better Agreements at Battle For Margin

spasigma-blog-footer-800-by-300-pixels

Your organization’s profits depend on the individual and collective negotiation skill of your employees – from sales to purchasing. The Battle for Margin negotiation intensive is a rare opportunity to dive deeper into negotiation strategy that will immediately drive for more profitable agreements. Don’t you and your team deserve to be set up for success? Don’t miss the Battle for Margin.

It will be held in Miami at February 9-10 at the Grand Beach Hotel Surfside.

Get negotiation intelligence you’ll find nowhere else:

Revolutionize how you and your team view negotiation. Give your organization the tools and knowledge to drive more profit than ever before with compelling and eye-opening case studies, critiques, and group exercises. Instill knowledge fast. The day will fly by because our seminars are purposefully entertaining and educational; people learn more when they’re having fun.

Attendee Testimonials

Here what our clients have to say about the power of strategic pricing tools from SPASigma Negotiation Training Seminars.

“SPASIGMA breaks the standard mold of slow pace seminars. It’s engaging, fun, and interactive in a setting that feels warm and comfortable.”

     — Mitch Koepp, Marketing Manager, All World Machinery

Other SPA Events

Click here for other SPA event dates and times including our upcoming webcasts.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can 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.

Six Sigma Pricing > Improve: Build Processes, Systems and Tools to Assist Teams & Create Reporting Tools to Track Improvements

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This is the fifth in a six part blog series on how manufacturers and distributors can apply Six Sigma methodology to the pricing function to generate repeatable margin gains. This blog covers the importance of driving incremental improvements through building processes, systems and tools to assist teams and create reporting tools to track improvements.

All pricing practice leaders know a disciplined process is needed to create and maintain Pricing Excellence – to effectively drive incremental improvements your team must focus on these four areas:

  1. Build process, systems & tools to assist team in exceeding their goals. (Automate at all cost)
  2. Hire based on foundational skills versus experience
  3. Train teams on key foundational skills that they will need to exceed their goals.
  4. Create reporting tools to track improvements

Processes, Systems, and Tools

As we covered in our last article on this topic, it is crucial that you implement real-time visibility into business processes defects in the Analyze phase to ensure you are focusing your improvement efforts in the right areas.

Other key elements of this phase include:

  • Base lining your current pricing performance helps to understand what the potential improvement can be.
  • Benchmark your goals and objectives based on the leader in your industry to drive toward World-class performance.
  • Creating playbooks allows you to go from identifying to rectifying deficiencies in your pricing process.
  • Implement automated deal tools so you can play offense or defense when appropriate by being able to make dynamic pricing decisions.

Hiring and Training

The real key to long-term success and to achieve Pricing Excellence – people. Always choose character over experience. Pricing is hard and you will train them to make excellent pricing decisions but they must have some core traits. Leadership, communications skills, and an analytical mind are the three most important traits. Quantitative, numbers driven decision makers such as former military academy grads, quantitative undergrad (Finance, Accounting, Physics, etc.) majors who also participated in a team sport, and yes even select sales people in your own company make great pricers.

To achieve long-term success, an effective and robust training program must be developed. It must include everything pricers will need to be successful and must be geared towards developing a proactive approach to identifying improvement opportunities in margin, market share, etc.  They must be constantly driving change – the ability to make decisions faster and more accurately is a major competitive advantage.

Reporting

Reporting tools to track performance in all areas are a must to drive profitable growth in your business and to drive discipline in the revenue side of your business.

Automated tools are needed to make effective decisions based on analytical scorecards. Answers to 95% of the questions about a deal should be at hand in near real-time and in a clear and concise format.

Creating Standard Operating Procedures are also key and must detail who does what in each step of each process and how decisions are made to eliminate confusion over price setting and approval authority, etc.

Six Sigma Program Overview

Six Sigma Master Blackbelt Greg Preuer, of SPA has created the first course designed to apply time tested Six Sigma methodology to pricing.  Those who study with Greg will learn not only how to drive the pricing process but how to sustain the gains and automate the process.  They will become Six Sigma experts (Blackbelt) in business process with a focus placed squarely on price management.

Graduates from this course will learn to chart a clear path to pricing improvement.  They will learn each of the following steps:

  • How to design and design goals which are consistent with their company’s pricing strategy.
  • How to measure and identify characteristics critical for pricing success.
  • How to analyze the current situation and steps along the way.
  • How to design an improved alternative which moves closer to the desired result.
  • How to verify that actions taken create the right results.

A Pricing Process founded on SPA’s Six Sigma Program includes the following:

  • Negotiating strategy and tactics
  • Value-based pricing
  • Automated decision making tools
  • Customer Profitability improvement plans
  • Sales team selling value
  • Pricing strategy and leadership
  • Consistent and fair pricing architecture
  • 2 to 4% growth in GM%
  • Pricing based on customer sensitivity
  • Continuous improvement focus

To learn how you can realize the benefits of SixSigma Pricing, contact SPA today at info@strategicpricing.com or 216.455.1545.

The following is the remaining area we will dive into in a future article in this blog series that will help illuminate the path to Six Sigma Pricing Excellence.

  1. Control: set and enforce pricing authority levels and repeat previous steps as continuous improvement never stops

Upcoming SPA Events

Set You and Your Team Up to Win Better Agreements at Battle For Margin

spasigma-blog-footer-800-by-300-pixels

Your organization’s profits depend on the individual and collective negotiation skill of your employees – from sales to purchasing. The Battle for Margin negotiation intensive is a rare opportunity to dive deeper into negotiation strategy that will immediately drive for more profitable agreements. Don’t you and your team deserve to be set up for success? Don’t miss the Battle for Margin.

It will be held in Miami at February 9-10 at the Grand Beach Hotel Surfside.

Get negotiation intelligence you’ll find nowhere else:

Revolutionize how you and your team view negotiation. Give your organization the tools and knowledge to drive more profit than ever before with compelling and eye-opening case studies, critiques, and group exercises. Instill knowledge fast. The day will fly by because our seminars are purposefully entertaining and educational; people learn more when they’re having fun.

Attendee Testimonials

Here what our clients have to say about the power of strategic pricing tools from SPASigma Negotiation Training Seminars.

“SPASIGMA breaks the standard mold of slow pace seminars. It’s engaging, fun, and interactive in a setting that feels warm and comfortable.”

     — Mitch Koepp, Marketing Manager, All World Machinery

Other SPA Events

Click here for other SPA event dates and times including our upcoming webcasts.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can 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.

Are Profit Vampires Sucking Your Blood?

Posted on Updated on

Read excerpts of an article that highlights how important it is for distributors to implement proven scientific pricing and sales negotiations processes that will stop unnecessary discounting by sales people for small customers who promise to buy in volume, killing a deal’s profitability with free services, and empower them to negotiate with confidence when providing complex customer solutions.

“The evil deeds of dastardly fellow, known as Count Purchasing, are legendary.”

You could probably add a few anecdotal stories of your own. But in our world, the greatest disaster to innocents with salesperson business cards comes when Count Purchasing transmutes into the shape of our best friend.

His sweet siren’s song goes something like this: “You’re really a great company. We really think you have worked hard…and because of all this, I am going to let you have the order… Assuming you can match the price.” To the uninformed, it sweetly rings forth with a too good to pass up message. At least until you analyze its hidden meaning.

Deep in the cavernous hideout of his castle office, Count Purchasing has an engraved plaque bearing the motto “buy from the best supplier, but pay the price of the worst on the planet.” In our case, he may be touting the ill-conceived price of that organization down the street. The one with no post-sale support, poor delivery and terrible accounting practices. Or in the case of our technology driven products, he may use the price of a company without specialists. All falling after your motion control, abrasives or cutting tool specialist invested days and dozens of phone calls helping his own engineering team develop detailed specifications, bills of materials and all the rest. Simply put, you do the work and get paid like the guys who did nothing.

“Vampire killing tip Numero Uno, you must recognize that Count Purchasing was trained to sing this verse.”

But wait, there’s more.

Another sweet song comes in the form of exaggerated quantities. “I will be acquiring zillions of these over the next few years. Give me the price level for your largest quantity break.” Strangely, the large order never comes. What’s worse is we, as innocents, often lock their organization into large quantity pricing without setting expectations for lack of quantity or periodically reviewing the results. Years pass and they continually feed on our goodwill. Again, a “trick of the trade” is used to pull the life’s blood from our organization. Vampire killing tip number two; develop quotes that allow for periodic quantity reviews.

“Not every vampire in our industry has a cubical down in the Procurement Department.”

Some of them dwell like invisible demons in the minds of our own folks. When we substitute “nice guy” thoughts in place of business sense, they flourish. Each and every time we give a really friendly small customer the same pricing as the gigantic user down the street – they put the bite on our bottom line. Research by David Bauders of Strategic Pricing Associates demonstrates thousands of examples of this phenomenon. Tiny customers are given sub-market pricing, strangely buying quantities of one or two at levels equal to or lower than your biggest customer who purchases hundreds at a time. Drop by precious drop the life’s blood of your business is drained from your bottom line. How much can this be? These are tiny droplets – but the red cells add up. David’s team has a track record of adding two points of added margin to distributor’s business.

“A trip to the musty crypt of the undead reveals a menacing claw fiendishly refusing to die.”

This monster goes by the name of Free Service. Let’s bravely explore the situation. We sold the customer a system back in 2006. Strangely, a decade later, we find ourselves mesmerized into believing post-sale service is our responsibility. What’s worse, we think we’re obligated to do it for free. In spite of expert advice to drive a stake through the beast’s black heart, the darn thing just won’t die.

The practice of free service is a time honored tradition in the electrical wholesaling world. It is reinforced by some supply partners. They would have you believe it’s the true duty of every red-blooded prey… I mean distributor. And systems integrators, contractors and installers echoed the message like sound bouncing in Dracula’s tomb. For some unholy reason, there’s not an issue with our service, as long as we never, ever charge for the privilege.

“Spend a little time at your next sales meeting talking about negotiation techniques.”

A few years ago we worked with purchasing guru Malcolm Mills on a series of sales process improvement programs. We discovered the guys on Malcolm’s side (purchasing) regularly attend classes covering negotiation strategies. They don’t lie, but developing skills to mislead our sellers seems to be worth the investment to them. Every time we stumble into one of their snares, it cost us money. Insist your sellers answer the comment “your price is too high” with a powerful value statement.

Invest a little time in understanding your value to the customer. Some of your day-to-day actions create thousands of dollars in real measurable value. Don’t let Count Purchasing hypnotize you into believing “all our vendors can do that.” First, it’s probably not true. More importantly, it doesn’t matter. If you produce real measurable value – it adds to the customer’s bottom line. You should be fairly compensated.

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.

The Future of Knowledge-based Distribution

Posted on Updated on

Read excerpts of an article that highlights how important it is for distributors to be “knowledge-based” and implement proven scientific pricing and sales negotiations process that will stop unnecessary discounting by sales people and empower them to negotiate with confidence when providing complex customer solutions.

“The members of FPDA tend to be deeply involved in providing customer solutions”

Earlier this month I was asked to lead a discussion on the future of distribution. In this case, we focused in on the future of members of the Fluid Power Distributors Association (FPDA). Since many of our readers are not FPDA members, allow me to provide a bit of background. The members of FPDA tend to be deeply involved in providing customer solutions. In many ways they epitomize the knowledge-based distributor. Their products are complex, sellers understand product technology and application nuances, customers lean on the distributors to provide technical support and most offer up additional fee based services.

Referring to the infographic below and the evolution of the distributor model, FPDA distributors are the poster perfect picture of the Knowledge-based distributor. Deep product expertise, product specialists, customer centric engineering and solution selling is their mode of operation.

“How can the distributor ensure they will be paid for the value they provide?”

For this breed of distributor it’s not about value-added sales, instead the crux of the equation is value-metric selling. Simply put, knowledge-based distributors provide value far above the logistically based guy whose “value-add claim to fame” comes by way of timely deliveries, consolidated invoicing and the occasional cross reference to a more conveniently purchased part. Instead, knowledge-based distributors provide the stuff needed to help the customer develop better manufacturing processes, reduce costly downtime, reduce rejects and drive profitability.

Strangely, only a few of the sellers in this high value world really understand the true worth of their actions. Research indicates, their sellers go the other way, undervaluing what they do. Instead of measuring the financial impact of their ideas in terms of impact to the customer’s business, they shrug off the economic benefit as part of their “service” often struggling to justify a percent or two greater margin than the person who provides just products without much needed technical support. And, this puts the group in a dangerous position.

“Knowledge-based distributors need a different kind of training”

The selling advantage goes to the distributor salesperson who can explain the value of their proposed solution in real customer-centric terms. It’s no longer acceptable to pepper the conversation in technical jargon and call it good. Improved cycle times, communication speed, scan rates and other data may be factor for selecting components. But when a solution is being discussed, the conversation must focus on advantage to the customer. Going further, customer advantages are best described in financial terms. For instance, the product feature of improved cycle times, translates into 10 percent more parts generated and that newly created production generates $ 500,000 additional revenue to the customer.

Training focused on understanding customer economic value is critical. But, it must also be understood that rarely are solutions outlined in black and white. To better understand the situation, let’s explore a hypothetical interaction with the customer.

“A study of distributors conducted earlier this year, points to a deficit in distributor negotiation skills.”

Looking more closely, we have sales teams who constantly negotiate solution and system pricing yet have very little formal expertise in the practice.

Anticipating questions, allow me to address a couple of points.

  • Our customers see us a partners and don’t negotiate when dealing with us. This misconception is rampant in the distributor landscape. Customers certainly do negotiate. And, many have formal negotiation skills training. Have you ever formalized the technical side of a solution only to be handed off to a purchasing person to finalize the details? This in itself is a negotiation tactic.

  • Our sales team is paid on the gross margin they generate, it’s in their best interest to capture as much gross margin as possible. From a purely cerebral standpoint, this makes good sense. However, many salespeople reason that a commission on a small gross margin is better than “haggling over a few bucks” and possibly jeopardizing the order or customer relationship. Pushing further, antiquated commission policies sometimes encourage sales types to capture less than optimal margins because giving away technical support or engineered services does not reflect on the gross margin number. In this case, the salesperson gets a commission on bad 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.