How to Know if Your Price is Right
BY ABBIGAIL KRIEBS
Most industrial distributors are looking to gain every advan- tage they can in today’s market. Whether that advantage they hope to gain is over their competition or over their
own past performance, it is important that the leaders of these
businesses consider every opportunity available to add as much
as possible to the bottom line. Warehouse automation, transportation negotiation, and Lean practices all show up in operational
goals to drive efficiencies, but often distributors overlook the
thousands of chances a day they have to instantly increase profitability: every time a price is agreed upon in a sale.
Stop Discounting Blindly
Sales professionals are often awarded a great deal of room to negotiate prices with their customers — and they should be. After all:
they know the customer better than anyone else at the company.
But salespeople often resort to discounting as a way to win – and
keep – business, even when discounting may not be the best option for that customer, or even that specific sale.
The best sales professionals know that pricing is an art; that you
can charge more for some items, but need to give certain customers breaks on others. These salespeople combine their experience
and intuition and try to make the best decision for each sale. But
gut intuition is not foolproof.
“It is important to not always rely on gut when running a
multi-million or multi-billion dollar company,” says Barrett Thompson, General Manager of Pricing Excellence Solutions at Zilliant.
The software that Zilliant and other pricing solutions providers create takes historical sales and customer data, market
conditions, and even branch-specific statistics and
creates optimized pricing for organizations to rely
on instead. These pricing solutions can be configured for an unlimited number of SKUs, customers,
and data points to ensure that every selling situation possible is represented, because pricing is a
dynamic aspect of business.
“Just like in demand forecasting,” says Thomp-
son, “in pricing it is possible to predict what will
happen with specific groups of customers when you
change your price: what will the response of the
marketplace be in terms of demand or amount of
purchase a customer will make with you when you change your
price?” Implementing a dynamic pricing strategy allows a distribu-
tor to adjust the price when it rewards them to do so, and to hold
fast to the current price if raising or lowering it would create an
unrewarding response from the customer, like less spend or the
refusal to pay a higher price later on in the selling relationship.
“Dynamic pricing is customizing the price to the selling cir-
cumstances,” explains Thompson. By adopting a dynamic pricing
attitude, an organization can maximize their profit on each sale
based on actual data.
Timing Is Everything
The problem with dynamic pricing is that pricing is… dynamic. It
changes every day and for every item and with every customer.
“That kind of complexity is impossible for any human being or
team of human beings to manage manually on their own,” says
Doug Fuehne, VP of Strategic Consulting at PROS, a company that
harnesses big data to help salespeople make pricing decisions. He’s
right: the speed of business is too fast today. Salespeople need to
have the data at the ready to make pricing decisions now, not a
day from now. “Just by having the information available at their
fingertips, salespeople were able to get the time to quote down
from a couple of days to a couple of hours, and that was really
impactful because they were finding the first good price out there
would win a deal, not necessarily the best price,” says Fuehne. “In
using software, salespeople on the front line can understand a
range of pricing for every item and every customer.”
This range of pricing from PROS
includes three touch points: an Expert
Price, the one that experienced sales
professionals should be aiming for;
a Target Price, where all salespeople
should be aiming on an average sale;
and a Floor Price, the price at which all
sales people are trained to walk away.
“This three-point band is very familiar
to salespeople,” says Fuehne. “The band
engages competition, and gives easi-ly-identifiable benchmarks for new sales
professionals as well.”