This is an exclusive summary of Part 2 of the recent MDM Webcasts strategic pricing series, “How to Implement Strategic Pricing with Your Sales Team.”
The theory behind strategic pricing is simple – streamlining the pricing process to identify and eliminate outliers. But implementation can be difficult, especially if you neglect to include your sales team in the conversation, according to Brent Grover, managing partner at Evergreen Consulting.
“You really cannot have an adult conversation about pricing if you’re not going to talk about the salespeople,” Grover said in the recent MDM Webcast, “How to Implement Strategic Pricing with Your Sales Team,” part of a two-part series available at mdm.com.
“Nothing happens until somebody sells something. So we cannot get anything done in terms of a management initiative without getting the unqualified support of the salespeople.”
But many existing pricing systems lack consistent structure, Grover says. And salespeople are often undertrained and poorly managed when it comes to price. The following tips provide a starting point for distributors to bring salespeople into the pricing conversation.
Restructure pay away from pure commission.
“Some of us make the mistake of letting our sales compensation program be a substitute for management and coaching,” Grover says. “Paying people on straight commission is really just the first cousin of paying them on volume. Some people know they’re better off spending the extra time going for more volume [as opposed to better margins].”
Salespeople don’t want to alienate their customers. And as a result, they may be hesitant to be aggressive on pricing – even if they work on straight commission. “After all, half a loaf is better than none,” Grover says. This falls on management, because they are responsible for coaching and training. They are responsible for providing the best information to salespeople for making the decisions in the field.
Having accurate, accessible information and solid training on how to use that information will allow salespeople to hold more productive conversations with customers.
Give your salespeople the power in pricing negotiations with customers.
Because salespeople often lack consistent pricing information, their ability to negotiate prices is limited. For example, a customer can say: “I’ll buy from you if you meet Company XYZ at this price.”
The problem with this scenario, according to Grover, is the power in this situation lies entirely with the customer because they are providing the information about price. And they have reason to misrepresent this information to the salesperson. Without independent information, the customer could provide a quote from six months ago, and the salesperson has no grounds to challenge this.
However, if the salesperson had a structure he could consult showing what similar customers (based on size and segment) are paying for the product in question, the power will shift back to the salesperson. Establish a “target price” based on “optimal margin,” Grover advises. And gradually move outliers that are below that line toward that target price.
Streamline the pricing process so salespeople can focus on what they do best: selling.
Establishing this optimal margin and target price can also alleviate some of the non-selling responsibilities currently being managed by salespeople.
Employees other than outside salespeople – from counter sales to technical sales specialists – may be asked for price quotes, Grover says. But because of the individualized nature of many pricing structures, these employees have been told, “Don’t ever quote prices to my customers.”
Instead, the inside employees have to tell the customer, “Your sales rep will get back to you.” “Customers hate hearing this,” Grover says. “By the time we get back to a customer, they may have already placed the order with somebody else.”
Appoint a pricing coordinator to act as a gatekeeper in the pricing system, he suggests. This person would audit, update and monitor prices, preventing ad hoc changes to the structure. Salespeople would still have the power to negotiate, but they no longer have to respond to 100 requests for initial quotes. That responsibility can now be delegated to those inside salespeople and customer service representatives.