The Oracle of Omaha, Warren Buffet says his number one factor in evaluating businesses is “pricing power”. Pricing power is the ability to sell at higher prices without losing volume.
Well, that sounds easy enough. As I was writing this column, I took out a number of old reports to look for some inspiration to share from my career as a distribution pricing leader.
The report titles were impressive
- Enhancing Gross Margin – First Choice Execution
- Pricing Realization- Workout Session Report Out
- Combined Forces Campaign- Pricing Workout Session
- Non-Stock Training – Pricing and Profitability Training
- Pricing 101 – a comprehensive training guide for inside salesmen, outside salesmen, and their managers (a very concise 75 pages)
There are a couple hundred pages of reports analyzing stock vs non-stock, manual pricing, system prices, and many other important business factors.
This was all put together by talented pricing teams trying to find solutions to sell at higher prices without losing volume. Unfortunately, many of these programs fell short of their profit driving goals.
Why? In large part because the senior leaders, pricing team, and sales team weren’t really committed to working together. This condition is called Pricingdisconnectivia. It’s a serious and sometimes fatal malady for distributors.
How can you tell if your organization has or is infected with Pricingdisconnectivia? Just take this simple quiz.
In your sales and pricing margin meetings.
- Does your team focus on, or blame commodity price swings? When you ask about margin issues do they talk in great detail about the price of copper, steel, oil, or other commodity price swings.
- Do you hear consistently that the competition is going low to win orders? Do your sales leaders use words like stupid, buying market share, and destructive pricing practices when referring to the competition?
- Does your team use a series of apostrophe t’s? Do you hear comments like- We can’t do that, the sales team won’t listen to me, we don’t sell our value? Do you run out of fingers and toes to count the don’ts, won’ts, and can’ts in the meeting?
- Is your first cost blamed regularly for sales and margin shortfalls? Do you hear that the purchasing team doesn’t buy right, our suppliers are giving a competitor better costs, or they focus on suppliers causing sales and margin shortfalls?
- Is there a sense of dread, disinterest, and a lot of crossed arms in meetings when margin improvement is discussed?
Your Diagnosis-
4 or 5 Yes Answers – You have contracted Pricingdisconnectivia. Symptoms may include consistent margin decline. Your top line sales growth is most likely combined with acute margin compression. Side effects may include an extreme focus on cost cutting programs including layoffs and headcount reductions.
3 Yes Answers- You have contracted Vanillaitis. Your organization probably performs on par with your competition in sales and margin performance. Symptoms may include no significant organic growth, fear of digital competition, and trouble executing your growth plans. Side effects may include senior leaders who are counting the days until retirement, and an extreme focus on short term organizational objectives.
1 or 2 Yes Answers- Congratulations- Your organization has contracted Valuitis (an acute focus on delivering and getting paid for your value) Symptoms may include organic growth, profitable share gain, and the ability to meet your top line sales growth and profit objectives for your company without extreme cost reduction measures. Side effects may include a fun workplace, raises for your associates, and a great holiday party.
4 out of 5 doctors surveyed recommend leadership that promotes the growth of Valuitis.
Fortunately, Pricingdisconnectivia is curable but you need a focused strategy and a strong leader charged with helping the company catch valuitis. If you don’t have such a leader, get one. Pricingdisconnectivia is rarely fatal to a company but it can permanently stunt your growth.
As always, we value your feedback. Feel free to comment below or contact me at john@mdm.com.
