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Why Analytics Are the Cornerstone to Pricing Improvement

Why Analytics Are the Cornerstone to Pricing Improvement

September 4, 2018

You can find a lot of ways to improve margin by analyzing the pricing behavior of your customers and your sales associates.

When your team is not looking at the right analytics, your B2B distribution margin improvement program won’t deliver the return you are expecting. 

Without detailed analytics and pricing research, leaders often will design one-size-fits-all programs that don’t actually fit anything. Your sales team and your customers all have different motivators, making one-size-fits-all solutions rarely effective.

This week, I got a question from a large B2B distributor looking for some advice on pricing training programs focused on their outside sales team. They wanted to get ideas on how to handle objections to price, selling on value versus price, how to prospect and qualify accounts, and how to manage unprofitable accounts, and more. 

The question was, “What can you do to help in that regard?” That, my friends, is the definition of a loaded question for a pricing team. 

So, where can you start to build programs and support to help your team maximize their top line sales growth and get paid a proper margin for their efforts? Here are three key action items:

1. Analyze the behavior of your customers and sales associates and then segment them. 

The graphic below is a basic customer segmentation model that was popularized by Texas A&M’s excellent Industrial Distribution Program. By using a similar approach with your transaction data, you can plot all of your customers into one of these four quadrants. Then, when you match your sales person assignments you can see some patterns. Your outside sales teams accounts almost always fall in the core & service drain areas. They handle the biggest accounts. After you plot your customers, plot your outside sales team. You will find three types of sales people: core, service drain and a category I call hard-to-tell (a mix of both types of customers but mainly grouped in the middle). 

Customer Segmentation Matrix-Source: Texas A&M Industrial Distribution Program

2. Develop training programs for each salesperson type. 

Each sales type is motivated by different factors. Your service drain sales team will often drive above-market top-line sales growth and take big orders off the street. They drive volume and are critical to your business. The pricing team may identify this group of salespeople as not adding value or knowing how to sell. This is short-sighted thinking. This group often has strong relationships with these key customers and are open to helping improve the profit margin they deliver. If you give them proper pricing support and programs that help them drive incremental margin increases you can deliver big profitability improvements. 

Your core sales group is often motivated by profit dollars and competitive programs. They often relish competing with their teammates. They want to be the best — and it shows. Programs that drive this sense of competition (scorecards, monthly sales competitions on margin, etc.) are often effective. 

The hard-to-tell sales team is often a mix of both types and will respond to parts of each program. If you can design a program that incorporates a competition with customer by customer assistance to drive incremental gains you have the perfect mix. 

Your B2B distribution business has its unique culture, so designing the right program for you isn’t a simple solution you can pick up by reading a few MDM articles. That’s why we will be spending significant time with each distributor at our MDM Analytics Summit on helping them design programs that fit their unique business. 

3. Don’t preach — collaboration is the key to winning.

As a pricing leader, you need to work with the sales team to meet your objectives. Preaching to them about value selling and how to handle price objections is often the best way to achieve defeat. I’ve got old B2B distribution pricing playbooks filled with tips on how to handle common pricing objections such as, “Your prices are too high” and, “What’s your best price?” with scripted answers. These playbooks rarely were effective because they preached instead of collaborated. Your sales team knows that it’s not a scripted business and will often resent the message. My advice is to work closely with your sales leaders to develop your playbook. Then have those leaders talk to the sales team about how to get paid for their value.

The best programs start with understanding where your customers and sales team are by looking at their purchases and behavior. If you develop your profit improvement programs on a foundation of analytics you can deliver the pricing improvement you need.

As always, I’m interested in your feedback. You can post a comment below or reach me at john@mdm.com

© 2018 Gale Media, Inc.

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