Why Do We Exist?
By Frank Hurtte
Shady characters armed with sinister plots to extract the hard earned dollars from the wallets of unsuspecting victims? These are the stereotypes constantly bombarding us from the television box and the movie's silver screen. Is it any wonder the sales folks in our industry shy away from the title "Sales Person"?
The customer-facing people in our industry don't fit the mold - they shy from the very thought of being a sales person. Instead they dedicate themselves to helping customers solve problems. Test after test indicates our folks feel more motivated to help than to maximize commission checks. I know this goes against the grain of what you've been thinking. I realize our industry has a long history of compensation plans based on growing gross margin. When I was a young sales manager I had dozens of sales person conversations focused on maximizing commission checks. But trust me on this; the majority of your sales team finds their greatest satisfaction in getting customers out of a jam.
What's wrong with this picture? Nothing if times are good and profits are flowing like cheap Cold Duck at a fraternity party. But in today's world there is an issue. Because some our best sales people morph into agents for their customers, their loyalties shift from parent company to loyalty to the customers. And even though, some who profess to be sales experts will encourage this type of behavior, a danger looms in the background.
After in-depth interviews with hundreds of distributor salespeople, we have observed a growing trend. Situations abound where the sales person takes a course of action that favors their customer at the expense of their employer. And while we believe this might be the right course of action from time to time, it has become epidemic in the world of wholesale distribution.
As the owners and leaders of our industry, we must reflect on why we exist in a way that transcends profit and gross margin improvement. Think about this issue for a moment. Our companies are here to provide valuable service to customers and vendors alike. We play an important role in the long term success of our country, our community and the industries we serve.
In addition to the contribution to our industry, we also support the large number of families who depend on our organization for their livelihoods. Most of us are small businesses. We create jobs; we're amongst the first to hire new people. And my own experience in the industry dictates - we are the last to lay people off during a recession. Our employees are more than numbers. We know their families. We contribute to their kid's Little League teams. Somehow we need to explain this "bigger mission" to our people. And here is why...
Failure to provide this message to your customer-facing sales team members puts them into the position of Robin Hood. Let's shy away from dollars and cents and instead talk about the value-based services you provide. Diverting a little extra value to the customer, in the form of training, troubleshooting aid, demo unit time or extended terms, doesn't hurt anyone - right? Well, it does. All of these have a value; they cost your company money. But most of these good folks can justify their actions because it's not really stealing - money. And, these people really are customers of some kind, even if they don't really contribute profits to the bottom line.
Beyond the valuable resources already mentioned, we must understand the natural psychological phenomenon surrounding efforts to improve margins. The concept of price sensitivity doesn't play well when you face the dilemma of deciding who gets a discount and who pays full price. Without some kind of pricing process and ongoing value-metric training, charging one person more than another seems immoral. When you're a counter sales person giving that nice guy at standing across the counter from you a great deal may seem like the right thing to do. Friendly, nice guys who may be in the start-up mode, struggling for existence or supporting your favorite charity seem like the kind of people a person should help. Besides that, we're still making a margin for our employer - it's just a little skinnier than it could be.
All too often our comments about margin improvement dwell on putting more to the bottom line. But we need to communicate our bigger purpose in life. Our very purpose for existing - which is goes beyond putting a few more shekels into somebody's purse. We need to communicate the importance of keeping up with rising costs. We should illustrate how margin fuels the engine of expanded services to customers, community, charities and how this builds security for everyone in the organization.
Communication is important. So, let's understand good communication. Effective leaders have discovered messages must be repeated - there's a reason why advertisements are played often. Not everyone accesses information in the same way. Some need to hear the message in person, others want to see things written down, and most need to hear the story repeated a number of times (7, 8 or 10 just to get started).
The Process of Getting Paid for What You Do
Building a real pricing process - with expert analytics, training, and metrics - is a critical part of your business success. First, a pricing process simplifies the decision-making process. Instead of asking your sales team to guess the optimal prices of thousands of products being sold to thousands of customers (millions of possible combinations!), you pursue a different path. The path to pricing excellence. Customer types are defined, market pricing levels are expertly determined and loaded into the business system, and exceptions to the system are carefully documented. Adherence to the process is measured and coached on an ongoing basis. To illustrate, let's look at a couple of examples that occur on an ongoing basis.
Quantity pricing is major stumbling point in most lines of trade. Think about this - a customer service rep gets a phone call asking for 20 widgets. They pull the number up on their computer screen, take a look at the price and in a millisecond must decide if a 20 piece order warrants a better price. What if the customer on the line is a really great guy? What if the rep can look on the screen and see that last week a really big customer purchased these at a very low margin? It's a moment of truth - and in most environments no documented rules exist. If a mistake is made, there's no coaching point later on. Margin erosion raises its ugly head and profits go down the drain.
Improper customer segmentation shows up too. Ask yourself this question. What are the chances of all the OEM's in your territory being large? Yet we often find salespeople get their customer a better deal by signing them up as a large OEM. Without a pricing process your accounts will undoubtedly find their way to the large category - regardless of their size.
If you don't communicate the bigger purpose of your company with your employees, you run the risk of encouraging bad business behavior. Not in a direct way, it's more of a sin of omission rather than commission.
Speaking of commission, don't believe for one moment your commission plan is driving a strong pricing process. Our sales people are motivated first by helping others - getting a fat commission check falls second (or third or fourth) to the helping thing.
Applying a pricing process makes everyone's job easier. It takes away a whole lot of the psychological self-doubt and pulls your salespeople out of the Robin Hood syndrome. David Bauders, the founder of Strategic Pricing Associates, together with his colleagues, has built a pricing process that combines world-class analytics that determine optimal prices that balance competitiveness with profitability.
According to SPA, for every product or service and every customer there exists an optimal price - this is the intersection of customer value and seller profitability. This is the intersection of customer value and shareholder value. The place both parties get the fairest shake; the squarest deal. The SPA pricing program is built around maximizing margin and creating a good deal for buyer and seller alike.
In my mind, we need to communicate this story...