Friday, February 14, 2014

Pricing Process: 10 Simple Questions

Some questions demand an answer, they literally jump up and down screaming for intelligent action. The problem is this; many times these questions develop over a long period of time. Because they develop slowly over time, they become invisible. Life’s like that. My dad used to say, “We’re too busy picking up acorns to see the tree.” I think we’ve gone past the tree and are neck deep in forest.

Last week I had the opportunity to address the leadership teams from a select group of distributors at the SPA Strategy Session in Fort Lauderdale. I was the final speaker, and the meeting was running long. To cut my talk short and put a little life into the meeting, I cut my presentation down to ten simple questions. I feel each of these questions demands an answer. Together, they demand action.

Question 1: Do you believe our business environment is changing?
It’s pretty hard to justify any kind of answer except for a resounding… yes. Our customers want more services, faster responses, more solutions and tons of other things. We’ve got more competitors. The big national chains are pushing into the sacred waters of our product niches. Amazon and Google are eyeballing the green grass we once claimed as our own.

Supply Partners want more from their distributor partners. We find ourselves doing some of the tasks once performed by their field sales teams. Besides these obviously sales related functions, suppliers want POS data, online order capabilities and extensive customer training capabilities.

Technology is a wonderful thing, but the internet has changed the role of selling from human search engines capable of coming up with specification and application data to complex problem solvers. Phone systems and voicemail have created a world where everybody is hard to reach. Technology is now available to everybody regardless of company size and type.

Even the people we work with has shifted. Boomers are marching off to the retirement sands at a rate of 19,000 a day. Generation X and the Millennial Generation aren’t behaving or thinking like the old timers ahead of them. Demographics shifts make our world spin like a broken boomerang.

Question 2: Does your own company need to change keep up?
“Eliminate the Middleman and save”, for some reason I can’t seem to get the picture of that old billboard along Route 151 out of my head. It’s an American axiom that’s only true if we distributors fail to change and morph our business model to match the needs of the folks we deal with, both customers and suppliers. Distribution is a change business; not changing brings death to our industry. Or, it brings extinction to our own organization.

To me the answer has to be yes. We need to be in a constant state of change.

Question 3: Does it work better if everyone in our company changes in the same direction?
As leaders, our job is to direct the change. When everybody flies in formation, we are more efficient, more effective and more profitable. All departments, all our branches, our technology resources and our culture has to change in the same direction and at roughly the same time.

I find any argument for changing in divergent direction questionable. So again the answer must be yes.

Question 4: Is it harder to change when you don’t know what you’re doing today?
The answer to this question comes via my dash-mount GPS unit. Before providing any driving directions to my destination, it goes through a series of steps called “finding current location”. Most distributors feel like they know what they are doing today. But deep analysis indicates they aren’t really sure how things work in the sales department.

I concur with my GPS on this one. We need to know where we’re at and what’s going on before we start making any changes.

Question 5: What’s the difference between your accounting and sales department?
Some say, “She’s was a natural born salesperson”. I’m not going to get into that argument, but I wonder if it’s feasible to say, “He was born an accountant”? True some folks have natural skills with numbers, they like to keep track of things. But, would you trust your accounting functions to a “natural” if they didn’t have a strong understanding of standard accounting procedures?

Tax codes, financial institutions and others insist on specific procedures and distributors are pretty good at following them. As leaders, we insist on it. But when we get to sales, we have few procedures, no measures of success in building customer relationships. Many of us have a hard time explaining if a salesperson is successful because of their regimented activities or if they happen to have a “lucky territory”.

I believe evidence points to a simple answer to this question. Accounting has a process. Sales does not.

Question 6: What happens when you try to change the sales group?
Screaming, kicking, gnashing of teeth? Most distributors discover the one department which should be a harbinger of change is the most resistant. What’s worse, salespeople can be pretty darn convincing. They offer up dozens of excuses; customer issues, competitive issues, supplier issues and some even more convincing.

The very nature of their work puts them outside the eyes of supervision. Some say they’ve changed, but don’t; silently biding their time until management relents. Others use their commission plan as a trump card against change. A good many will go underground. Their company begins charging for delivery on nickel and dime sized orders, and they take time from selling to personally run all over the territory delivering from their car.

The point of all this is we’ve got to anticipate pushback. And, as leaders, we’ve must hold our ground.

Question 7: Why is it important to document your direction?
Thinking about sales department pushback, one of the things the sales guys will say is “our boss goes out and hears some slick talking consultant (who probably has never sold) and comes back with a hair-brained idea and tells us to go forth and follow the plan”. It’s the old idea of the month thing.

Documenting slows down the whole activity. It forces us to rethink the idea. It helps us refine the course. But there’s more… Documenting the direction helps others better understand the direction. It allows better and faster training. It steadies the course removing distractions along the way.

Question 8: Why measure your progress?
“That which is measured improves, that which is measured and documented improves exponentially”
Pearson’s Law
In a world filled with distractions, measuring progress keeps you moving in the right direction. One client of mine is fond of saying, no coach trains their team to the final score; no football coach says we need to score more touchdowns. Instead, they work on blocking, tackling, first downs and lots of little steps that lead to better scores. They realize it’s the little things that drive success.

For the leaders of a distributor, it’s about the steps that lead to more customers, customer retention, more efficient handling of orders. Simply stated, if we only measure the final gross margin, we miss out on the things that drive customer orders.

Question 9: What’s the difference between coaching and managing?
For one thing coaching is about personal development; helping each and every person perform to the best of their ability. Coaching is one-on-one. Coaching is the first approach to growing your team. Coaching is about building playbooks and organizing the players so everyone is in the right place. It’s about getting the most from everyone on team.

Managing is the next step. Sometimes coaching involves setting harsh reality that a player doesn’t belong on the team. Managing sometimes involves jettisoning a person who refuses to respond to management.

Ideally, both managing and coaching is based on objective metrics. People aren’t judged on personality or attitudes. Instead, decisions are made based on performance data. Are they following the documented procedures? Are they performing in the small steps needed for larger success?

Question 10: What can we do today?
This is the question that needs the greatest thought. Doing nothing is easy. Doing the right thing involves the evaluation of risks and rewards. Doing something right now is important. There may be a lot to do.

Here are some points to ponder.

First, in a well thought out plan, the processes are interactive. Improving one thing typically improves a many other points along the way. Everything in our business interacts with the things they touch. Here’s an example.

When you build a pricing process, one of the typical first steps is segmenting customers by size, business type and ease of doing business. The activity of segmenting improves marketing, sales effectiveness and planning. Different pieces of the puzzle, but each is improved. Building a real process is important.

Three parts of a real process
First, there is no such thing as an informal process. Many distributors lull themselves into believing they have a process but it’s done on a person by person basis. Not so….

To be a real process it must have three important ingredients.
1. Documentation – a detailed written document which describes how the process works, who is specifically responsible for each phase of the process, how success is measured and who has the ability to modify the process in exceptional cases.
2. Metrics – metrics take the subjectivity out of the equation. We can understand if progress is being made. Our team can easily understand their own personal improvement, without management intervention.
3. Coaching and management points – the metrics give us places to help our team improve along as the organization moves through the growth plan. Coaching and managing is predictable and without opportunity for personality to come into play.

Let’s get moving
I am often asked how and where to start in building a process. I believe there are a two places that stand out in comparison with others. Here’s my criteria. First, they carry major impact to the distributor’s bottom line. Secondly, they interact with the greatest number of other processes within the organization. In other words, do a good job with these, and the interaction affects the rest of the business. Here they are…

Companies who work a real, and vibrant targeting process are 47% more effective in reaching their sales goals. They understand their value. And, more importantly, they know which customers are most likely to benefit from their value. Salespeople plan better, bring new products to market faster and waste less time. Managers have more and better coaching points and measures of success. New salespeople especially get traction faster and with less thrashing around.

Pricing Process
I have had the opportunity to closely observe the work of David Bauders’ Strategic Pricing Associates for the past two or three years. Their clients typically drive two full points to their bottom line. The cool thing about gross margin improvement comes because most of it (80% is a good estimate) falls to the distributor’s bottom line. We see instant profit improvement for the home team. And the Pricing Process improves the distributor’s work in segmentation, value selling and overall operational efficiency.

We’ve asked you a lot of questions. Do you have a question for us?

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