Only about half of intended price increases are actually captured*- System prices are lowered by the sales person over 50% of the time
- Only 35% of surveyed companies* have sufficient pricing power to achieve the “right” price for their goods and services.
Too many distributors make the mistake of plugging prices into their system and then walking away. This is sort of like a baseball coach who tells his team “our analysis says that this team can improve our batting average by 15 points. Now, go do that.” Without any coaching, you’ll get a team who pretty much keeps doing the same thing they’ve always been doing. Your batting average won’t go up.
Neither will your margins. Building a Margin Enhancing Infrastructure means creating a corporate culture that is focused on margin gain and sales behavior. This means three things:
Take control of pricing
Simon Kucher’s 2012 Global Pricing Study** shows that C-level commitment is significant to increasing pricing power, and thereby profit. Management that is engaged in the pricing strategy, from analysis to implementation, will lead by example and have a better pulse on what’s working and what isn’t. And to those who say, “Pricing is the sales person’s job”, consider this: Sales people spend most of their time pricing only the most competitive items. When an incidental sale comes along, they leave money on the table.
Profit2 recommends that your sales team stays key to identifying sales that are high volume and price sensitive while management takes strategic control of incidental pricing, which accounts for about 30% of your sales.
Manage fear
All day, every day, customers are pushing back on your sales people. They live in fear of losing the sale and not making their sales objectives. Like those baseball players, without coaching and confidence your sales people will keep doing what they’ve always done. They’ll fall back on “rules of thumb” pricing, regardless of what data they’ve been given. Fear will win every time. The trick is to manage and eliminate the fear:
- Back up your sales people – Create a collaborative environment of price targeting and a fair system of accountability. read more
- Get the numbers right – If the prices don’t work, your sales people won’t use them. read more
- Coach your sales people to not only trust the system, but how to pitch the prices to the customer.
If the technology you employ and the numbers you use are focused on helping your sales people make smarter and less emotional decisions, then you will see the gains you want.
Commit to Maintenance
Markets change, customers evolve, prices fluctuate, and sales people fall back into old habits. Creating a corporate culture around margin means keeping your data fresh and your sales people focused. This requires dedicated attention from management to watch the numbers and maintain the program over the long term. If you do, you’ll see sustained margin gain and your business will be that much more economy-proof. That’s one of the reasons why even during the recent recession, our clients have maintained and grown their margin.
* Global Pricing Study 2011: Simon,Kucher & Partners
**Global Pricing Study 2012: Simon, Kucher & Partners
