You can't cheerlead your people to pricing success
In spite of what all of the leadership gurus tell you about constant encouragement and the importance of repeating your message until they get it, it's simply impossible to cheerlead your people to success in pricing.
Think about it. You've probably hear the "Power of One" presentation a dozen times over the past couple of decades. Distributors by the hundreds periodically pick up on this message and share it with their teams. Trust, some have repeated so many times their salespeople can recite the message verbatim. But, they still lack any kind of sustainable success.
The sad truth is the deck is stacked against you from the start. Customers are constantly pushing backwards against your price. Sometimes this happens because the purchasing guy is classically trained to ask for a better deal. Other times long years of conditioning by our sales team has reinforced the behavior. The customer learns the lesson - ask and you shall receive.
Sales people are encouraged to build tight customer relationships. In the trenches, this translates to conflict avoidance at all costs. They believe it's their duty to "cave in" to any enquiry about budgets or price with at the very minimum some type of nominal discount. No discussion of the value added by their company, no pushback with the price being fair for both companies, and no knowledge of the true market price is tossed out it's; ask and you shall receive. They turn their eyes to the ground and say, "Hey let me see if I can come up with something a little better."
After the relationship has matured, they may actually succumb to the "good guy syndrome" and naturally provide their favorite customers with the best price on the planet - because that's what friends do for one another. Research across over 350 distributors indicates small customers are treated to the same pricing as the biggest company on your customer list. Why? Because that's what good guys do.
Flat rate pricing just won't die. Every company has some comfortable margin. If you don't really know the real margin - just add some magical percentage. Let's be specific; if you're an electrical wholesaler you probably have hundreds of items marked up 20% gross margin every day. Every industry has a magic percentage like this. What makes it worse: only the person pricing the order knows your cost - certainly not the customer. Supply partners lament they can't give their best distributors a higher gross margin because in a year they give the extra points away. Allowing the margin levels to drift back to very near that magical point.
Delusional thinking kicks in. Distributor salespeople will cross their hearts and swear they know the market. After all they have been in this industry for 10, 15 or 25 years, and their experiences give them some super human ability. We'll drill into this in just a moment but for now let us propose an easy experiment for you to try. Print out your 50 highest selling items. Then ask your sales team to give you the market price for each. Our experience dictates, even your smartest guy will score a less than passing grade.
You must have a real process to drive your pricing plan forward. What's real? Your process must have documentation, training, measures and coaching points. Skip one of these and it's not really a process. Pricing process is no different, except for on major point. The number of pricing permutations is enormous.
The typical distributor sells 10,000 SKU's to 5,000 customers. Each and every customer - product interaction is a pricing permutation - 50 Million of them. Earlier we made reference to sales folk with super-human strengths; no normal person can keep track of that number in their head. Further, the number doesn't lend itself to spreadsheets and other home-cooked plans. Nothing against your people, their skillsets or training; the number is just too big.
You need a powerful analytical tool. Something that harnesses the power of advanced proprietary algorithms with powerful hardware. Analytics become a cornerstone of your metrics and measuring points.
Armed with management tools which provide exceptions to the pricing plan and levels of adoption of the plan by market, branch, and salesperson, the distributor can begin to make progress. The analytical measures provide coaching moments with real data. Imagine setting with a salesperson and saying, "Your current pricing system compliance is 62%, what can we do to bring more customers onto the system?" Or in a periodic review of numbers be able to tell a salesperson, "If you would have used the system 95% of the time you would earned $4,397 dollars more commission this quarter."
Advanced management tools further drive the pricing plan forward. After the initial coaching honeymoon comes to a close, data from which to make hard management calls grows in importance. Quick reports allow the manager to easily segregate those who provide great pricing "lip service" from those who produce real results. This allows for better long term employee reviews and heart felt talks about their future with your company. Ultimately, compensation plans can be tailored to drive precisely the right behavior in your business.
Strategic Pricing Associates has nearly two decades of experience driving the pricing process forward. It's not a consultant, a book or even a computer program. Instead SPA combines a scientific proprietary computer algorithm with a proven process for documenting, training and building your team into a profit making machine. Strategic Pricing Associates has partnered with over 350 distributors and 200 manufacturers to provide real results that matter. The typical distributor adds two points to their gross margin with results in 90 days.