Strategic Pricing Associates

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Why do they buy?

Yesterday, I received a marketing intelligence survey phone call. And, while I generally just hang up when I get this type of call, this one came at the perfect time. I was in the car alone, facing a lengthy drive and just decided to go with the flow and take part. Convenience stores were the topic. And, I am an expert. Over the past couple of decades, I have a hard time remembering a single day that I haven't stopped by one of these little spots.

Over the first 4 or 5 minutes, the survey plunged into bathrooms, employee uniforms, customer greeting, parking lot lighting, food quality (really) and locations. Then the discussion turned to price. It drug on and on. The price of my favorite QuickSpot's candy bars, fountain drinks, coffee, hot dogs, salads, bread, milk and beer were all rated on a one to ten scale. And, I recognize QuickSpot as the high price store in every category. It was a magic moment when the lady doing the survey asked, "If you recognize their price as higher in every category, why do you shop there?"

In my mind, they forgot to ask the most important question; "Why do I buy?" What is it that keeps me coming back to this same place every morning around 7:00 AM? For me it's about convenience and speed. I can hit this place grab my coffee and other sundry items hop back in my car and be seated at my desk in less than 5 minutes. Price has nothing to do with the equation. Strangely, the survey forgot to ask.

As strange as it may seem, very few distributors ever ask the single most important question in the selling business. Why do people buy from us?

When they do ask, and sometimes it's more of an afterthought than plan, price typically shows up somewhere around five or six on the customer's hit parade. The most important points often hit on:

  • Local Inventory with high Order Fill Rate
  • Speedy Counter Service
  • Application and Product Expertise
  • Customer Training
  • Quality of Product Offerings
  • Accuracy of Billing

So what about price?

Price comes in way down the list. Most of your top customers will tell you, "As long as your price is competitive, we're good to go." But salespeople struggle. Why?

Let's face it, nobody has ever sat down with your sales guy and said, "Hey Joe, your price is too low." Conversely, someone, (a purchasing guy or an account justifying their position with a competitor) has definitely stated, "Your price is too high." This leaves a lasting impression.

Because most of our customers are nice people, most wimp out when the salesperson doesn't perform. Instead of saying, "You really dropped the ball on this order and I decided to give it to your competitor." They say, "You were just a little bit high." And, this message gets pumped back into your organization under the heading of the competitor down the street is bombing price. Other salespeople take the message to heart. And, your margin goes circling down the drain.

Further aggravating the situation, we discover a great many sales people don't really understand the value they provide to the customer. Out of fear, they never ask the customer what they really think of their service, professionalism and follow-through. Just like their bosses' they haven't bothered to ask the "Why do you buy from me?" question. They don't understand their service's value to the customer in real world dollar and cents terms. They begin to believe their service offering is just the same as every competitor in the market.

So what's a distributor to do?

Gather your team. Ask them for real examples of why customers make the decision to steer their dollars to your organization. Let the team ramble. They can probably come up with a long list. After the list has been created, ask where they got the information. Discuss each example. Who said, local inventory is key? What were the circumstances? Who were the competitors? Why did the customer select us versus them?

As strange as it seems, very few companies reinforce these thoughts with their sellers. Instead they leave them to fall victim to random negative thoughts on pricing.

Survey your customers. Getting back to our original comments. Why don't distributors formally survey customers on precisely why they buy? Cross check this information against your sales team's impressions. Where they spot on or did they leave out some critical purchasing drivers.

An important side note: "Why buy" information provides critical marketing day. If customers buy from you because of your extraordinary fill rates, why not add this information to your marketing campaigns. Further, this story can easily be conveyed to other target customers who would benefit from the same service.

Add some analytics to your pricing. Old habits die slow agonizing deaths. The habit of discount pricing in a value rich environment is no exception. Sales teams need help and guidance. Strategic Pricing Associates (SPA) analytics are a powerful tool in measuring progress. Let's dive into the topic.

SPA analytics allow you to segment both customers and product offerings. Different customer types are more price sensitive than others on a product by product basis. Going back to my convenience store thoughts outlined above. The c-store survey team didn't even touch on gasoline prices. Why? Because at three or four bucks a gallon most people are very much aware of the cost. Across my city, the price gap is just a few cents; something like a one percent spread. If the price is close, the c-store is good to go. But, step inside the c-store. The same folks who are price sensitive on gasoline pay almost no attention to the cost of their double diet mocha cappuccino and prehistoric hunk of beef jerky. Same customer different product, totally different pricing sensitivity.

SPA analytics guides you by employing data from your customer base. Every market and customer group varies slightly (note I used a generic gas price, a great price in New York may be a poor price in Iowa). Your data properly analyzed provides a real picture of customer and product group segmentation.

Analytics moves pricing from opinion to data. Most sales managers have delivered the gross margin talk to their teams five, ten, maybe dozens of times. The team shrugs their shoulders and goes away unconvinced. Analytics provides a whole new insight into the process, many times graphically representing the story of random pricing.

Determine the discounters in your organization? SPA's unique process allows you to measure salespeople for conformance to pricing strategy. This is key. Some folks need coaching, management and subtle nudges along the way to break away from a career of poor pricing practices. The ability to individualize the message, gauge improvement and set incremental improvement goals does wonders to push whole teams ahead.

Why do they buy? Revisited

There is power in knowing why your customer buys. The seller can concentrate on delivering more of the same. Improving the situation without over reaching the bounds of the appropriate. The seller gets paid for doing the right stuff, the buyer gets a better deal and the both quit expending time, effort and energy on the wasteful price dance.