Is Your Sales Team Asking The Right Pricing Questions?

Is Your Sales Team Asking The Right Pricing QuestionsMake no mistake; no customer buys anything just because they like you.

Truth is, you either bring a great deal of value to your customers or they take their business elsewhere.  Your products and capabilities must provide customers an opportunity to achieve greater returns on their business.

The nature of price competition

Competition In BusinessIn sports competition, the more intense the process, the better the game.

The key to success is to put you heart in the game and play it as hard as you can. In sports, the ultimate goal is to WIN.

In price competition, the more intense the process, the worse the game.

The key to success is to weigh thoughtfully the cost of each confrontation against the likely reward. In business, the ultimate goal is to PROFIT.

When pricing, don’t get constrained by tactical thinking

When pricing, don’t get constrained by tactical thinkingTo achieve the greatest profitability, a sales person’s job is to ask strategic pricing questions.

Do Not Ask:

“What price do we need to cover our costs and achieve our profit objectives?”

Ask:

“What changes in our prices or product mix would increase the contribution available to cover our costs and increase our profits?”

Do Not Ask:

“What prices are the buyers willing-to-pay?”

“What level of price will enable us to achieve our market share objectives?”

Ask:

“What level of market share can we most profitably achieve?”

“Which portions of the market can we profitably fight for (with what weapons?) and which should we yield to the competition?”

“How can we minimize the adverse effects of price competition in pursuit of sustainable profits?”

Managing price competition without undermining profitability

Don't THink Tactically About PricingThere are only two ways to prevent price competition from undermining profitability:

  • Develop competitive advantages
  • Manage the competitive process

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

Recognized market leaders are likely to initiate price increases but often do not initiate price cuts.  Often, the price leader role is filled by a firm that has technical leadership and low unit manufacturing cost.

The market leader often has the largest and strongest distribution system. Market leaders generally also have technical leadership. Customers are anxious to maintain relations with suppliers who are in the forefront of technology.

As a sale person, your goal must be to implement a pricing plan that provides leadership to the industry and communicates your desire to stabilize the markets and capture your value. It should incentivize your customers to trade up and earn you a reasonable return.

That’s a win-win for everyone.

How do you communicate your value and pricing with your sales team and customers? Let us know.

Are You Using a Zero-Based Marketing Communications Strategy?

Advertising EffectivenessDesigning hard-working marketing programs is not a simple “black and white” situation. There are numerous choices, many different methods and no single optimal combination exists.

It is, in effect, a collection of ideas, approaches and options that change continually to meet changing needs, new marketing opportunities and growing competitive challenges.

There are, however, strategies to help make marketing efforts more cost-effective. These include coordinating your marketing with your direct selling, developing a zero-base budget and establishing clear, measurable objectives for every dollar spent.

THE MARKETING BUDGETING PROBLEM

“I know that half my advertising dollars are wasted, but I don’t know which half”

quote-half-the-money-i-spend-on-advertising-is-wasted-the-trouble-is-i-don-t-know-which-half-john-wanamaker-193077

Sound familiar?

For decades, companies have tried to make their marketing dollars work harder. They have used concepts such as target marketing, niche marketing and positioning to help build sales by generating leads, reaching decision-makers and even asking for the order. But a problem remains: marketing and sales have never been completely coordinated.

The result is that money is allocated to advertising because everyone knows advertising is necessary. And sales people are told go out and sell because most B2B products and services are sold that way.

This approach has worked in the past, but the changing business climate will continue to force companies to re-evaluate the entire process. To borrow a buzz-phrase, tomorrow’s marketing will have to work − not harder − but smarter.

AN OPPORTUNITY

Consider your marketing spend in terms of its contribution to profits…instead of just cost of sales

Are You Pricing For Volume or Profit?Instead of basing the marketing communications budget on projected sales, the sales requirements can be used to establish a zero-based project approach.

In this way, the actual point when the sale is closed determines what materials and how much should be spent to make the direct selling effort as cost-effective as possible.

A DIFFERENT BUDGETING APPROACH

The first step is to establish a benchmark for both the cost-per-call and cost-per-sale

Cost Effectiveness of Direct Selling Worksheet

Using the chart, determine the total cost for your entire sales force, and then the average cost-per-call and cost-per-sale. (At this stage, do not factor out individual salespeople).

The resulting numbers are a measure of your current marketing efficiency, arid will serve as a gauge of the cost-effectiveness of your total future program.

Next, using the chart below, break out your new accounts and those you have had for at least one re-order. Depending upon market factors, you may also want to break out the accounts by region, season, or some other criterion.

What you are measuring here is the cost-effectiveness of your existing direct-selling effort, looking for the types of accounts which are most profitable and those which are least profitable.

Cost Breakdown by Account TypeAs a general rule, your marketing depends upon the profitability level of each category. Those categories where direct selling is very profitable should have programs designed to support the sales person, helping to either increase the dollar volume per account, or lower the average cost-per-sale.

Those categories where the profitability level is low should have programs designed to replace the sales person as much as possible.  This can be accomplished effectively with programs such as automated marketing to lower the cost of pre-qualification inquiry fulfillment.

Once you have determined the cost-per-sale for each category, you should establish sales objectives. The first is to maximize a sales person’s productivity, and to do that requires establishing the prime job function:

  • Developing new business leads
  • Making presentations
  • Maintaining face-to–face contact at existing accounts
  • Trouble-shooting problem accounts

Do You Have A Customer Engagement Strategy?Obviously, some or all of these functions could be present in all categories, but by assigning the sales person a prime function, you are taking the first step in determining:

  1. The type of program (support vs. replacement) that will result in a lower overall cost-per-sale
  2. The message that each component in the program should carry
  3. The amount to be spent to deliver the message(s)

Given this information, you are now in a position to correlate all your advertising, promotion and direct selling expenses to sales.

Program effectiveness can now be tracked. And you can begin to consider your marketing spend in terms of its contribution to profits…instead of just cost of sales.

Good Selling!

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!