Saturday, August 21, 2010

Price based Buying, Vampires and The Undead

Vampires, according to the HBO TV sensation True Blood, are darned hard to kill. Seems like no matter how much sunlight, garlic juice or holy water you throw at them, the evil beasts keep coming at you. The same holds true for the price based buying myth.

I want a show of hands, how many times have you heard that pricing ranks somewhere at near the bottom of most buyers (not purchasing departments) top 10 purchasing criteria? A recent study of 1,200 companies making purchases in the technology segment conducted by McKinsey and Company revealed many of them claim price is a driving factor in their buying decision. But, their actions are not consistant with their behavior. Could it be that even customers believe the myth?

When McKinsey examined what actually determined how customers rated a vendor’s overall performance, the most important factors were product or service features and the overall sales experience.

Here are a couple of additional points to consider. Customers were turned off most by the following behaviors:
35% say --> Too many contacts by the sales person
20% say --> Lack of Product Knowledge by the sales person
9% say --> Lack of Application Knowledge by the sales person

Did you see anything about price in those comments? But unlike those nasty vampires these customers of ours are actually a pretty nice bunch of folks. Most would rather not hurt your feelings. I believe it's much easier to say, "Frank, your price is too high" than to come out with the truth. And at least 64% of the time, the message would be:

"Frank, you waste our time. You come around way to many times with poorly planned or unplanned sales calls. Sometimes you even show up without an appointment. And once you arrive you don't know enough about your product. You certainly don't have the slightest clue about how we work our business."

You know it is easier to say, "Your price is too high."

Now, put hand on the computer screen and vow to remember this day - forever. When your customer spews those kind words remember. There is a 64% chance they really meant to say... You got outsold!

Read the McKinsey and Company Study here

Sunday, August 8, 2010

Frank Hurtte featured on Fully Threaded Radio..

Way back in 1994, I had the opportunity to briefly meet with George Gilder, a best selling writer, techno-Utopian intellectual, and Presidential Advisor. Mr. Gilder had just written a book called Life after Television which predicts a future where everyone has the technical capacity to produce and distribute their own TV and radio programs.

A couple of weeks ago I met somebody who is bringing this vision to life. Eric Dudas (of Fasteners Clearing House) has created Fully Threaded Radio. Fully Threaded Radio is a bi-weekly radio program devoted to the fastener industry. This hour and a half show is designed to be downloaded to your I-pod or listened to via your computer.

If you are part of the fastener industry - I recommend you make this a regular download. And if you are part of another industry, let it be known, it's about time we move the wholesale distribution channel into the 21st Century.

And by the way - listen to me on Fully Threaded Radio Episode 9.

I cover two topics:
How to Maximize the Value of Distributor Association Meetings
The Targeting Process

Thursday, August 5, 2010

The Gross Margin Equation - For the Record

It happened again. Actually, it’s happening more often all the time. Last week I sat in on a manufacturer – distributor discussion. During part of the conversation gross margin levels came into the conversation. Guess what? The manufacturer’s sales guy didn’t know the difference between “gross margin” and “mark-up”. After the conversation, I politely (and privately) pointed out the error in his calculation. He thanked me, but then said, “My product offers good profit potential, why get hung up on semantics?”

Earlier today, I read an article by an industry expert. Somehow his confusion in the gross margin calculation slipped past his editor. It was a small point - just a few cents difference. So, why the fuss? In my mind, it’s all about vocabulary.

We develop vocabulary to describe in a couple of words things that otherwise would take many words to describe. We build benchmarking metrics, business formulas and other important descriptors around these terms. One small mistake in a calculation could lead to big issues down the line.

If you are a manufacturer’s sales person, an industry consultant or a neophyte wholesaler, remember this formula.

Gross Margin = (Sell Price-Cost of goods sold)/Sell Price
Mark-up = (Sell Price – Cost of goods sold)/ cost of goods sold

An example:
Sell Price = $167
Cost of Goods Sold = $100

Gross Margin = (167 – 100)/ 167 = 40% Gross Margin
Mark-up = (167 -100)/ 100 = 67% Mark-up

Can you see how this kind of confusion could lead to trouble?

By the Way....
Some people mistakenly substitue gross margin for gross profit. I don't like that habit either. It implies that distributors actually get to keep a significant piece of those gross margin dollars, but that is a different story.