We asked a group of 15 sales representatives from the same company to tell us the price they would quote the same customer for a given product and quantity. They quickly looked around the room as if this were some type of consulting red-herring.
“Simple” the senior rep replied and quickly scribbled out a figure on piece of paper.
“I missed a customer appointment for this” a international rep said faintly under his breath.
When the air cleared and all the reps finished the five minute exercise we had them post their responses. Guess what? There were 15 different responses. The CEO who was sitting in on the session and EVP of Sales were beside themselves. They knew they needed to improve the uniformity of their pricing – but had no idea the spectrum of answers would be this far reaching.
Before either of these senior executives stood up to tear a piece from the sales force – we quickly jumped in and asked a very powerful question -
“what set of steps or process does the company provide you to determine your pricing alternatives?”
“None” was the general response from the group. Despite having a price list – there were a myriad of criteria and dependencies the reps factored into the final number that would be submitted to the customer. The problem was – and is in many companies – there is no set process for pricing that follows a visible and uniform set of criteria. The result of an erractic pricing strategy is seen in lost sales, less than optimized margin, smaller sales’ orders and unproductive time of the sales force.
These profit blasting issues can be corrected by implementing a simple four step process that becomes a practical price decision making tool for the company.
1. Define Pricing Objectives: the purpose and goal should come directly from your company’s strategy for that customer segment
2. Set Common Criteria For Pricing Decisions: Rather than hoping the sales team factors in the right objectives – create and weight a common list. I have included a list for you to start from that works very well in making visible the factors to consider. See ilustration below.
- Alternatives: How many alternative products can be easily accessed by the customer?
- Unique: How unique is the product as measured by value to the customer?
- Customization Level: At what level is the client perceiving the product as customized product?
- Service level: at what extent can the competition deliver superior service capabilities?
- Substitute: How many competitor products perform the same or similar functions?
- Access: How easily can the competition access the customer?
- Volume: What is the potential volume of the sales opportunity?
- Strategic Emphasis: What is the level of FIT to the Sales PMM?
- Profitability: At what level does the opportunity yield profitability?
3. Generate and Select Optimal Price Ranges: A process does not mean sales reps have no “power” or influence to “massage” the pricing depending on he customer relationship or sales style. The range of alternatives driven from common criteria ensures that all price options satisfy common objectives of the company.
4. Implement, Track, and Communicate Price Alternative to Customer It still comes down to getting the order – but by being more systematic and in fact tracking the pricing that customers are offered – it makes this set of steps a tool to manage positive and negative sales’ outcomes – rather than sitting around the coffee table and wondering why the sale was lost or won.
To maximize profitablity having a pricing process to apply systematically is key. The best companies recognize this is a decision making process that must be codified and applied. In the end – the sales force saves time and likes it better than conjuring up prices everytime they are asked.
Does your company have a systematic decision making approach for its pricing?