John Salch recently posted a great blog about removing the boundaries of technology – allowing your sales force to use tools they are already comfortable with, yet still providing key information to make great pricing decisions. One of the most important pieces of information you can provide is knowledge about a specific customer, the product their buying and what other customers, just like this one, are willing to pay.
Most B2B Manufacturers and Distributors provide their sales forces with limited information. Sometimes it’s just the cost. There is almost always a hard floor (e.g. 10% margin). In more sophisticated companies there is access to the average sale price for a product across all customers. Finally, peer performance is ultimately used to benchmark one sales person to another, regardless of product or customer mix.
A better way to measure your sales force, as well as empower them, is to give guidance on where the price should be as it relates to similar products and customers. Some of your customers require deep discounts due to their large volumes, industry, competition and purchasing behavior. Other customers cherry-pick. Others use you as fodder to get better pricing from their preferred vendor. Sales people know this instinctively, yet management has yet to measure them appropriately on these key factors.
Segmentation allows companies to correctly classify different customers and the product they buy. Each unique sales situation can be correctly identified. Moreover, the historical patterns for similar customers buying similar products are used to generate pricing guidelines that make sense given the current selling environment.
I’ve had the privilege of seeing companies use a science based approach to classify customers, product and purchasing environments. Interviews with sales people and those that approve pricing reveal the appreciation for intelligence behind guidelines. Here are some actual quotes:
“I’ve been using the target price more often than the stretch, mostly on new items not ordered previously. Nothing drastically different than normal pricing. No customer’s have called me on changes. Depending on the customer, I’m much more likely to use the tool…”
“The software has some clear logic behind it. As I change the quantity and buying situation, I see very different pricing.”
“I am using PROS daily and finding that I usually am increasing pricing based on Target and Stretch data. It is also a big help when I am quoting or ordering a new product because I am finding that I would usually price below target without the data so now I am not leaving money on the table. Periodically I will lower a price if it is higher than stretch for a customer. I believe the system is very valuable.”
“I’ve always priced this part at 14% GP, but the floor is at 17% so I’ll definitely be increasing the price.”
In today’s market, all companies are looking for ways to protect margin and drive incremental profits – why not empower your sales force at the same time?