Price increases are a part of doing business. The challenge is getting sales reps and customers on board with the changes. This article offers a road map for getting buy-in from the sales team and, as a result, a better return on the price increase initiatives.
This article is a summary of the MDM Webcast: How to Help Your Sales Team Execute Price Changes Successfully.
A mere 2 percent increase on the top line can translate into “20, 30 or even 40 percent gains” on the bottom line, according to Ryan White, founder and managing partner of INSIGHT2PROFIT. But often, an initiative to increase prices by 2 percent results in a much smaller increase.
And without buy-in from the sales team, the chances of achieving any desired price increase, even a small one, goes down.
“Sales reps aren’t used to talking about price and value naturally,” White says. “They may have lines they can use, but when they get pushback, they concede price.”
The solution is to engage the sales team through four “phases of involvement,” he says.
The first phase of involvement is educating sales reps, which means making sure they have the right information at the right time. Provide data to the team rather than having them rely on anecdotes and gut feel to sell an initiative.
Does the sales team understand what differentiates the company from the competition? Often, sales reps don’t actually know what it is that the company does better than everyone else, White says. And if they don’t know, they can’t sell that value to customers.
And often, sales reps hear only the negatives, so they go into negotiations with a bias that they’re already on an uphill climb.
“Data will help identify differences,” White says. Ask customers what it is that your company does better than others and what it does worse. This can be done through anonymous customer surveys or by simply asking purchasers what they value about your company.
Another critical piece to educate the sales team on is why the price increase is necessary. Don’t just use the excuse “it’s the manufacturer,” White says.
Use real data points, such as the raw materials prices or freight costs, to show the sales team why prices are trending upward. If they understand why the prices are increasing, they can better communicate to their customers why a change is necessary.
Finally, break down customer price data by rep to show each one how much price variation there is just with their customers. “A graphical representation of real data, not theory, that’s their data, is a very powerful tool to get them to realize they have to do something different,” White says.
Extend that analysis to include all the factors that impact the “pocket” or real price that customers pay after discounts, freight costs or rebates. Make them aware of how much other elements are reducing the revenue.
For example, one distributor noted that if every customer paid list price for every product, it would be a $328 million business. But due to the size and magnitude of discounts and other factors, the actual revenue was $275 million.
Once the sales reps have the data, give them choices that allow them to identify the best opportunities. Reps may recognize the need to increase price, especially after they’ve been given the data, but still worry about losing business if they push too hard.
Engage them in the decision-making process about how to achieve the price increase, White says. Some customers may be less sensitive to increases that come from changes in discounts or freight. Take the analysis of the prices that customers pay and let the sales reps
use the information to determine how to approach their customers.
Targeted price increases, rather than blanket ones, can be much more effective, White says. And it can bring some of the customers who are consistently paying less for many products more in line with what the market actually supports.
Build a model to give guidance on how to optimize the relationship. For example, mapping out clients based on products, risk and relative price point can help identify where the price sensitivity is.
“Corporate can’t tell where the risks are,” White says. Give the reps a price increase “budget” but let them drive the price increase where it’s best for their customers. Hold them accountable to the overall impact but allow them to refine the specific approach.
Veteran salespeople believe in their success. “They think they know what they’re doing,” White says. But the truth is that they could always do better.
“The buyers that they are going against are going to training. They wake up every morning talking about how they’re going to get a better deal from you,” White says. “We need to arm the sales team with those same skills, balance the scales of how we interact with purchasing.”
It is critical to practice this type of communication. Bring in representatives from your own procurement team to talk about their strategy for getting better deals from your suppliers. “What would they say if sales brings a price increase to them?” White asks.
Salespeople don’t often think of the sale from the same perspective as purchasers, but role-playing as purchasers will allow them to get a better sense of the mindset they are up against.
Doing this with other sales reps will also provide exposure to what they experience with their own customers – different questions or concerns – which will provide new tools for responding to the situations.
Even the best-laid plans fail if there’s no way of measuring the impact. Reps need to be held accountable for results after the initiative has been launched, White says. There are always some people who are just “nodding through the meetings” but who aren’t really on board with the plan.
Simple dashboard and scorecards are an easy way to show reps how they compare to others, White says. Track the price performance of their customers against the wider company. Ask them to justify outliers.
Make sure the reps understand what the company wants and can explain what they’re doing to help it get there.
The most important determinant of whether an initiative will succeed is if sales reps are confident that they can achieve the goals.
“It’s not about the science,” White says. “It’s about the engagement throughout and supporting them through the process.” If they believe they can make it happen, they are more likely to follow through on what needs to be done to succeed.