The last few times a customer told you they found a lower price on a product at one of your competitors, how often did you lower your price in response? According to a survey from John Gunderson, MDM VP of E-Business and Analytics, the majority of distributors (38%) report they will lower their price two out of three times. Twenty-nine percent say they’ll do it once, 24% never will, and 9% will lower it every time.
Gunderson shared these statistics during MDM’s July Sales Transformation Roundtable webcast. If there’s ever a time to question the effectiveness of our response to routine occurrences like this, it’s during a global pandemic when the business shakeups we are all experiencing give us the opportunity — I would even say the necessity — to examine the actual value that results from our rote actions.
For example, Gunderson noted that customers who make statements like the scenario above are typically lower-margin customers to begin with. The better you can get at resisting the gut reaction to lower your prices just because a customer raised the specter of finding lower prices elsewhere, “the better quality of customers you’ll attract,” Gunderson said.
Most distribution sales teams tend to think their prices are higher than the competition. In fact, Gunderson said in his two decades in the field, he’s never come across a sales rep who believes their prices are competitive with those of their competition. It’s not a surprise that reps can feel this way, and feel pressure to respond, because Gunderson also noted that the highest-rated buying factor by end customers is competitive price.
Why So Focused on Price?
But it’s not just customer preferences that drive your sales team’s focus on price. Other factors, Gunderson said, include:
- It is hard to change the quantity of each SKU the customer buys to a more margin-friendly quantity.
- It is hard to get customers to add SKUs to their purchase order, even with a concerted, “Would you like fries with that?” approach.
- It is easy to change the price. In fact, Gunderson said, 95% of the time it is the only part of the order process the sales rep can change.
So, what can you do? For starters, Mike Marks, managing partner at Indian River Consulting Group, recommended removing your sales team from the pricing process altogether. “Salespeople should not be involved in pricing if you want to play at the A level,” he said.
If you’re not ready to go that far, at least make sure you know how your team reacts to common pricing scenarios. Gunderson said to ask them questions such as:
- Ignoring the number in the system, what do they think a fair price is for a commodity product or non-commodity product?
- When a customer says the price is too high, what do they do?
Score how your team feels, but don’t do it in a vacuum. If you’re looking for a place to start, join Gunderson, Marks and fellow distributors for much more on pricing best practices at our upcoming all-virtual Sales GPS 2020 conference. Visit salesgps.mdm.com for more details.
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