Pricing is one of the most difficult and frustrating duty manager must deal with. Pressure comes from all sides. Both the sales force and customers can be very vocal. Managers never hear that their prices are too low. They usually hear that the competition will provide equal service and quality for a lower price
This question plagues many managers :. What should the role of manager to be when it comes to pricing? Some managers use almost full control, while others waive pricing decisions to the sales force.
The outside sales force would naturally pricing power and often feel insulted if the manager is not “trust” them enough to give them at least some degree of pricing flexibility.
Giving pricing authority salespeople can often be a real cost of margins. There are several reasons that I believe this is true. One reason is that most poorly trained or inexperienced salespeople tend to lower prices when they receive price resistance.
Another reason is that once the hard bargaining, the price-oriented customer figures out that the salesperson has pricing power in his hip pocket or her salesperson will often putty in the hands of the customer.
key, I believe, is the difference between costs and prices. Customers say they want lower prices, but I think what they really want is a lower cost. If the sales force is adept at explaining the difference, maybe it is not all that negative to give them pricing power. But if they do not have these skills, perhaps pricing should be left in the hands of the manager.
price is what the customer pays for goods or services in the face of the invoice. Cost is what he pays for a total your “offer”, which includes service, quality, personal knowledge salesperson is so
On assignment with Northwest lumberyard, I was working with a group of salespeople on how to deal with pricing issues when one of them volunteered, “I lost the frame to one of the bases of my clients because my price was only $ 200 higher than the competition.” He went on to say: “I knew that our service was superior to the competitors and I was right. The builder had nothing but problems with the work.”
“What kind of problem?” I asked.
“Well, for one thing, the first delivery of [competitor’s] was over four hours late.”
“How framers had in practice?”
“He had a very good size crew. He had seven crew.”
“How much would you guess that he pays his crew an hour?”
“I would guess pretty close to $ 20.”
“And how late was spoken?”
“If I remember correctly, it was about four hours late.”
“So what you’re telling me that this particular Framer had seven men on the job for four full hours doing nothing while they waited for the demarcation to come, is that right?”
“You heard me right.”
“Well, let’s do some simple arithmetic. Seven people times four hours per person is 28 hours. 28 hours times $ 20 per hour would come for $ 560. What other problems did he experience? “
” Well, this is a pretty good example of the difference between cost and price. It sounds as if framing crew customer had to wait around for a late delivery cost him $ 560 to save $ 200 Your client made the same mistake a lot of builders have done, he did not take into account the overall cost of doing business with new suppliers who service obligations were unproven. All he considered the price of the face of the account. “
” I wish I had had the presence of mind to explain these differences [between costs and prices] when this first happened. “
” Well, can not change history, but you can remember to make this team the next time prices are a few dollars higher in the face of the invoice. Just remind him that there is a big difference between costs and prices. “
If it was my business, I would not give a pricing authority to the sales force. I would put the organization with someone who was more objective. It is almost impossible for salespeople treated feathers in their caps for sales to hold the line on pricing, especially when it is at stake.
But if I were to give pricing flexibility to the sales force, I would make sure one inparticularly
# 1 I would make sure my salespeople were trained to negotiate, I think it’s a bad idea to put the pricing power in the hands of a group .. salespeople who have not been schooled in the art of negotiating.
I both advisory work and training for the 16 location of the distribution process. It is company policy of this company to allow individual managers to run their locations as if they were their own. So it is very decentralized company.
One special manager in this chain is by far the highest margins in the company if he operates in a market that is no less competitive than many others where the chain operates. What’s the big difference? This controller allows 100% of all pricing decisions. If salespeople his run of competitive, they need to report it to him. In some cases, authorizes sales representatives to meet the price. But in others, he prefers to go out and visit with the client. In still other cases, he can go to the business altogether.
What about your business? Are your salespeople trained well enough to have pricing power?