Is Pricing Making You Go Bananas?

bananasLet’s face it. The CFO is always the first to suggest raising prices.

And we in sales and marketing aren’t always willing to stand up and salute. We really want any other solution besides a price increase.

What we really want is:

  • New products
  • New promotions
  • New packaging
  • New services
  • New advertising
  • New news of any sort

Almost anything new beats the pants off asking for a new, higher price

But when business is off and capacity underutilized, commodity costs always seem to pick that moment to rise as well. The CFO was right, it was time to raise prices and execution was absolutely critical.

That means the first one that need to be convinced is the sales and marketing team. Without their full support, the customers won’t be swayed and the situation will get worse, not better.

What do you need to support a price increase?

Ideally, you have these tools to support your price increase message:

  • A letter from the CEO (or other senior exec) announcing the increase with:
    • The amount of the increase
    • What products are affected
    • The timing of the increase
  • Charts showing rising commodities over time
  • Proof that you have done your best offsetting the cost increases internally
  • A new printed price list
  • Any customer-specific special net pricing
  • Any changes to policies
  • Other support that helps make your case (maybe a competitor’s price increase letter)

Winning the confidence of the sales team is critical to execution

Engaged sales teamHaving the right tools to inform and educate the customer is critical but do you take the time to inform and educate the sales team?

Taking the time to enroll the sales team is a critical step to successful pricing execution.

Owens Corning undertook one of the best examples of this enrollment back in the 1990’s when their asphalt roofing business desperately needed a price increase. As it turned out, the business needed a price increase that basically worked out to a one cent price increase per pound of shingles. (It should be noted that this was not a common measure of how shingles were priced.)

The leadership team made the price increase goal come alive and seem achievable

banana2What was special about the one cent number is how small it seemed to the sales team.

The Owens Corning team kept up the math game and worked out what the average cost per pound shingles worked out to be. At the time it was roughly the price of a pound of bananas.

An analogy was born. Bananas came in only three colors: green, yellow and brown. Shingles came in over 30 colors yet were the same price.

At a national sales meeting, the banana case was made. After a presentation featuring a roof illustrated with bunches of bananas, the sales team took a morning break to find tables set outside the meeting room filled with bananas (some even were stickered with the OC logo).

Creating a rallying cry helps create engagement

After the sales meeting, the division president reinforced the urgency of his price increase message with a letter to each sales person. Included with his note was a t-shirt with a banana on it (complete with the company logo).

Bananas quickly showed up on presentations, buttons and pins to show solidarity with the critical mission of achieving a one cent per pound price increase.

The roofing product manager demonstrated that adding value changes the underlying pricing assumption. In this case, he showed the price per pound of a banana is far, far less than the price per pound of banana bread or banana cream pie.

Keep the team informed on execution success

chart-up-increaseThe team worked hard to execute the price increase. The one cent per pound was never fully realized although they were able to achieve about half the goal.

The leadership team posted a chart that was used to visibly track progress at the headquarter location and was broadly shared with the remote sales teams. Progress was celebrated even though the full goal was never achieved.

Which goes to show that even in a tough environment, a motivated sales team can rally around the need for a tough-to-deliver price increase. Management can make the goals seem highly achievable and create a rallying point that can help the entire team understand the urgency and critical need for the price increase.

For other Channel Instincts posts on pricing, see What Does “Your Price is Too High” Really Mean? or Are You Pricing for Volume or Profit?

Good Selling!

What Does “Your Price Is Too High” Really Mean?

Dec-Jan 2010-2011 035It could mean, “I don’t like you, get out.”

It could mean, “I am testing you. I have nothing to lose.”

It could mean, “You haven’t shown your value to me.”

It could simply mean, “I’ll get a better price by saying this.”

It could mean, “I am only doing what you as a salesperson have trained me to do.”

Hints when selling around price

Don’t fear your price!  Be confident and not ashamed.

  • Know your value
  • Know your competition
  • Know your customers’ needs

Never start discussing a price quote with phrases such as:

  • You better sit down before I quote you my price.
  • This is the best I can do.

Don’t open your price up to negotiation with leading phrases:

  • You know I want to work with you.
  • I’ve been doing business with you a long time.
  • I sure don’t want to lose your business.
  • I could give you a lower price if…
  • Since you are one of our better customers, maybe I can let you have it for this price.

Never invite or challenge your customer to “shop” your price. 

This is what to avoid saying:

  • Our price is lower than anybody’s.
  • Comparatively speaking, I think we have the best price in the market.
  • Our new price is…

Avoid placing yourself in a defeated position on price.  Here are a few examples of what to avoid:

  • Just tell me where I need to be.
  • What do I have to do to get your business?
  • Am I in the ballpark?
  • Of course I could give you an even better price if…

When A Buyer Says…

“I don’t care about service, delivery or quality.  Price is all that is important.”  Response: “Okay then we’ll provide you poor service and quality products.”  This will put them in a position that forces them to admit their statement is false — they do care.  This will allow you to reinforce your value.

“My guys sell what the customers want.  They don’t see the difference.”   This is a great opportunity to meet and sell the salespeople.  Ask if you can talk to his people.  This is a great “pull through” opportunity.  Once you sell the sales reps — price becomes a lot less of an issue.

“We are reducing down to only two suppliers.  If you want to be one of them, you’ll need to get right!”  In this situation, never cut your price without the commitment of what will be gained.  At this stage a price quote without the commitment will only be used to leverage the other participants.  Response: List your competitive advantages; assure the buyer that you will be competitive and that if he’ll make the commitment now — on the spot — you’ll close the deal.  Put the heat back on them!

“I need an incentive to cut off a long-term vendor.  You must be lower if you want me to do so!”  Response: Only commit to being competitive.  If they didn’t have a need they would never consider a change.

What’s marketing looking for?

What does the marketing team look at when making a price decision?

  • Will the price requested set a new market low?
  • Will we be profitable with all the program added in?
  • Does it add or cut back ends?
  • Do we carry a price premium over our competition?
  • Can we reduce the “let’s make a deal” nature of our business?
  • Are we acting as industry leaders?

Make sure that the customer has truly earned and justified the price they need.  Make sure you are comparing apples to apples — there are many elements of price — get your facts straight. 

Once price is relinquished make sure you have gained something for the value you provided.  Finally, communicate thoroughly, professionally and always be reinforcing your value.

For other Channel Instincts posts on pricing, see Is pricing making you go bananas? or Are you pricing for volume or profit?

Are You Pricing for Volume or Profit?

imagesCAMM6VP4Your costs are rising and your margins are declining.  Worse, your retail partners are demanding greater margins and it’s a scorecard measure.  You need a price increase but you run the risk of triggering a line review or losing placement.

Let’s start with a basic premise: our job in Sales and Marketing is not to merely generate volume but rather to generate gross margin.  How then can we overcome pricing issues?

Profitability without growth will only serve to create an environment with no opportunity.  Growth without profitability only serves to create a poor performing large company.  Profitability without growth will only serve to create an environment with no opportunity.  Understanding the balance between volume and price is your job!

Survey after survey of retailers, dealers, distributors, contractors and homeowners shows that price is rarely the key driver in the decision process.  In fact, it is usually 4th or 5th.

When you buy a shirt or blouse, what factors do you consider?

  • Is price the key?
  • or style, color, fit, brand, or image?

How many of you buy clothes or anything else based on price as the #1 criteria?

Let’s take another example: a motorcycle helmet.  Is price the deciding factor? Who buys the cheapest motorcycle helmet?

Business is a Game of Margin – Not Volume!

Business is a gameToo many companies believe that volume and market share are the secrets to business success.  Yet regularly billion dollar corporations file for bankruptcy in the U.S.  When financial trouble comes, companies “cut price” in an effort to drive top line sales.

Remember, it is the buyer’s job to discount your value, while simultaneously securing it.

Your goal: Implement a pricing plan that provides leadership to the industry and communicates your desire to . . .

  1. Stabilize the market
  2. Capture your value
  3. Incentivize your customers to trade up
  4. Earn a reasonable return

To maximize your pricing and profitability you must:

  • Take a leadership role
  • Understand what price is
  • Sell your value
  • Recognize that being competitive is more than just price

It starts with pricing leadership.  You must take a leadership role…

  • Price leaders generally have brand preference.
  • Price leaders generally have the largest and strongest distribution system.
  • Price leaders generally have a technological advantage or leadership that customers generally want to be associated with.
  • Price leaders generally have scale.
  • Price leaders generally have created either real or perceived value for their goods and/or services.
  • Price leaders have a competitive cost position.

Finally and most importantly,

  • Price leaders have the courage to lead.

The ultimate goal in managing price competition is to create a stable competitive environment where you can earn the best possible sustainable return on investment.

The forgotten elements of price

trade-show-specialsMost everyone thinks of the invoice price and terms.  But these are the forgotten values of price:

  • Growth rebates
  • Promotional allowances
  • Show specials
  • “Buys”
  • Advertising allowances
  • Co-op plans
  • Pallet configurations
  • Terms
  • Price protection
  • Builder rebates
  • Contractor rebates
  • Parade of Home/Model Home allowances
  • Pick-up allowances
  • Guaranteed service cycles
  • Merchandising allowances
  • Service
  • Packaging
  • Customer accommodations
  • And more that are unique to your industry

Each of these elements makes up your pricing – and your value – to the buyer.  Don’t forget them when negotiating and remember they all are eating away at your account profitability.

Sell your real value

Your real value to your customer is the incremental advantage they get from doing business with you.  This list is generic, but you can use it to start building your own:

  • Deep customer relationships
  • Intimate customer knowledge
  • Shopper Knowledge
  • Broad product lines
  • Facilities nationwide to provide service and consistency
  • Technology and innovation
  • Outstanding quality
  • Packaging leadership
  • Brand awareness
  • Retail expertise
  • Merchandising and promotional ability
  • Lead generation
  • Customer service support
  • Web-based dealer portals
  • EDI
  • Industry integrity and financial clout
  • Multi-product accessibility
  • Accessibility to senior management
  • Online consumer education and support
  • And others unique to your company and position

You should already have an idea based on the market.  YOU own the process.  Homework is critical, so ask a lot of questions…starting with what do we get for making the price move?  That’s the biggest question of all!

Being competitive is more than just price

"What's the price?"Another key question is to ask what’s the competitive situation?  Don’t just shout “we’re not competitive! to the product manager or your sales manager.  Being competitive is more than just price.  Competitiveness is in the eyes of the beholder!

  • What’s the customer’s commitment to us — 25% or 100%
  • What’s the overall volume compared to other customers in the market?
  • What’s the competitive price on “like” product?
  • Who’s the competitive manufacturer?
  • Who is the distributor involved who quoted the price?
  • Is this the price on the invoice?
  • Is freight included?
  • What’s the price after all rebates, discounts, etc.?
  • Is this one time only?  For a job?  What’s the duration of the quote?
  • How does the competitor go to market?  Do they have brand identity, service programs, marketing support etc.  What does the customer like about the competition?
  • How will the competitor respond if we make a price move?
  • Will the competitor respond by taking our new price offer to accounts we do not have positioned at this price – in other words, lateralize the offer?
  • What other of our customers will be affected by this lower price?

What added value can you offer?

  • What else can we bring to the party other than price?
  • How can we help grow the customer’s sales?
  • How can we lower their cost?
  • Can we use any of our unique capabilities to keep from cutting the price?

Marketing is all about 4 P’s, one of which is Price

Make sure you spend as much time understanding pricing as any other one of the P’s.  Pricing deserves respect, attention and creativity.  You will be rewarded with greater profitability and be more competitive in the marketplace as a result.

For other Channel Instincts posts on pricing, see What Does “Your Price Is Too High” Really Mean? or Is Pricing Making You Go Bananas?  

For a Channel Instincts post on expanding the 4 P’s of marketing to 13 P’s, see The 4 P’s of Marketing Aren’t Enough Anymore!