Wednesday, May 28, 2014

Product Training, Sales Training, Price Training?

It just dawned on me; the way distributors view training is skewed. After observing hundreds of confabs carrying the “Distributor Sales Meeting” moniker, I would characterize the content as product-centric community bulletin boards with an occasional dash of something else. Here’s my unscientific rundown of content:

49% New Product Introductions
Everything you ever wanted to know about some new product. Often these are conducted by Supply-Partner field sales teams with little grasp of the local customer mix, competitive landscape or the sales team’s technical abilities. Only rarely is customer application information discussed.

20% Existing Product Re-Launches
We started selling this product a year ago. After limited success, we decided some of the sales team didn’t pay enough attention to the product minutia shared last time. So here we are back with more information, only this time the sales guys ask a little better questions.

15% Delivery/Logistics Issues
Time is devoted to issues with long lead times, factory recalls and seasonal stock outages. These meetings are good because often they provide “work-a-rounds” to keep customer’s plants running and minimize damage.

10% Company Policy, Quotas, Performance
Everybody needs to understand the new benefits program and vacation policy. Meetings to discuss Quotas and annual performance are equally important and may be the only thing we’ve talked about that deserves to be part of a “sales meeting.”

5% Sales Training
Once every great blue moon, someone talks about how to better sell the company and products. Generally these come in half day bursts every 18 months or so. The rest of the time, there is no discussion of the company’s intrinsic value, no talk of presenting to customer management and no words on developing better questions.

1% Pricing
A rookie may receive misguided price training while shadowing a rock star salesperson on the road; however, this type of training barely makes list. If it comes up at all in a sales meeting, it generally follows a distributor association meeting where somebody does the “Power of One” presentation.

Why do I believe this is totally skewed?
First, we live in the age of information. Twenty years ago, distributor salespeople were viewed as important sources of customer information. Things have changed. Customers have access to massive quantities of product information. Raw product data presented by a salesman is almost viewed as a nuisance. What is valued is application support, tips on product interconnection compatibility and troubleshooting support.

Customers do value training; however, most distributors charge product specialists and application engineers with this task. On a side note, I believe salespeople can gain important understanding of customer issues by accompanying their customers to training and asking customer-focused questions about what is being discussed. But, this is not something for the sales meeting.

What should be covered in a sales meeting?
One major point is why a customer would benefit from the use of your product. This benefit question must be tied to value drivers. Labor savings, lower cost maintenance, better energy usage, increases in uptime, and improved operational efficiency must be studied in detail. Whenever possible, it makes sense to tie these to monetary values. For example, our product saves the customer $105 dollars during the installation procedure.

Distributors also add value via the services they provide. Just in time delivery, emergency back-up stock, parts kitting and application support join valuable yet mundane tasks such as locating and serving as a source for some obscure manufacturer.

A real sales meeting would stress the importance of the value the distributor provides to each and every customer. A real sales meeting would cover the questions needed to bring out customer-centric information which would allow for better solutions.

But what about Price Training?
Would it make sense that some distributor solutions are scarcer than others? With this in mind, the
distributor is entitled to charge more. The problem is, most distributor salespeople don’t fully understand the cost of handling the products. This could be part of price training.

A few of the products we sell are truly commodity-like. When commodities are sold, quantity and types of logistics required impact the price. Would it make sense to talk about precisely what makes a “quantity order?” Is it 10 pieces, 10 cartons or 10 pallet loads? Are the people in customer service aware of the price breakdowns? Are they measured by the way they adhere to management’s directive?

The sales team must continually review (and occasionally improve on) the following topics:
1. How was the system price derived?
2. What are the natural customer segments and how do they impact price?
3. What product types deserve a higher margin? And why?
4. How do we handle pricing exceptions?
5. How are market prices impacted by competitors?
6. The importance of understanding customer-based negotiations?

Based on my experience, very few distributor sales managers can answer questions arising from a discussion of this list. And, price training is not a place to stumble around in your response.
Here’s why:
Customers are trained (perhaps conditioned) to question our price. Many use price as an excuse for not doing business with us when the root cause is actually something else. It’s easier to say, “Your price is too high,” than it is to outline the truth, “We decided to go with your competitor because they out service you on routine stuff.”

The message is confused. Training is difficult. At the same time, it is an extremely important topic.

In distribution, a gross margin increase of just a couple of points stands to increase bottom line profitability by 50, 60, maybe even 100%. To achieve the same results by way of sale growth requires a near doubling of company size and that kind of growth can take years. Successfully impacting pricing can happen in a few months.

Price Training starts with a Pricing Process.
Developing a real pricing process is central to price training. The Strategic Pricing Associates (SPA) process uses scientific computer analysis of data pulled from your own past sales. Further, the process has detailed documentation designed to enable multi-layer training for literally everyone within the distributor organization (Sales, Customer Service, Purchasing, etc.) Finally, the SPA process has metrics developed to coach, help and manage the sales team into the future.

Strategic Pricing Associates has assisted over 350 distributors through the implementation of their process. Most SPA clients see results in 90 days. The results pay dividends. The typical SPA client sees a gross margin increase of two full points.

A final thought
Strategic Pricing Associates hosts several Pricing Strategy Seminars. These are a gathering of clients already using the SPA system, Industry Experts and companies considering a pricing process.  The seminars are thought provoking and powerful.  I have had the honor of speaking at a handful of these events and will be doing so again in Chicago on June 6th.

If you find that your company has not had price training since the days of the Carter Administration, I encourage you to attend. What’s more, attendance is free.  Click here for more information.

Friday, May 16, 2014

Industrial Distribution Survey

Check out the 67th Survey of Distributor Operations: The Value of The Distributor
as compiled and 
presented by Industrial Distribution magazine.
Anna Wells delivers a comprehensive review of the results of the annual questionnaire that was sent to nearly 27,000 Industrial Distribution subscribers.

In all honesty, I debated this post for a good portion of the day.  And while my assistant cringes any time I want to write a post advertising my newest book or article, it was her idea to post this.  After all, the above information is a great way to get a feel for the Distributor mind and see how you compare.

You may be surprised by some of the answers.

Friday, May 9, 2014

Bite your tongue for saying “free”….

I just had a conversation with an old friend; somebody I worked with back in the 70s.  We were both young Turks on the training program of a major manufacturer. Armed with freshly minted engineering degrees and lots of ambition, we felt we were poster children for “manifest destiny” or at least something like that.  Early on we kept in contact, but then life happened.  And now, after all these years, thanks to the good folks at LinkedIn and unusual last names, we reconnected.

Did someone say FREE SUPPORT?
It turns out we both ended up in distribution.  I asked him to tell me about his business.   Somewhere midway through the description he said, “We are a high service distributor in our market.  We have engineers, highly trained sales people and we provide tons of free support for our customers…”

With mass quantities Starbucks caffeine already surging through my veins, my blood pressure did a flip-flop.  My muscles tightened, the fight or flight instinct kicked, my throat tightened.  I asked if he had seen the title of my new book.  Upon hearing his response to the negative, I gave him a short book review.  Here’s what I said…

For distributors who service the manufacturing and Institutional sector, the landscape has changed dramatically (and continues to change) since we were young pups and the current distribution model was evolving.   Customer companies have downsized, right sized and re-engineered their organizations to run without people.  Over time we distributors have filled the void by providing everything from training and technical support to kitting and JIT inventory services.

In the old days, the gross margin generated from the sale covered the costs of all our “free service.” But forces of technologies have done three things:
1) driven the price of everything down
2) increased the complexity of even low end products
3) provided products that last much longer.

At the same time, the cost of people (60% of the distributor’s budget) has escalated.  Brand new engineers out of school get a median salary of $60,000 (if we use 1977 dollars when we started as a benchmark, engineer salaries have grown 25-30% more than the economy), and they still need to go through the same lengthy training programs we did to be effective.  Exacerbating the situation, the distributor’s supply partners have “pared down and dumbed down” their sales effort relying on distributors to pick up the slack.

This puts our world as distributors on a collision course with catastrophe.

This is not a “how to” book; my experience dictates every
distributor needs to do things just a little differently.  Instead it is a “why you need to change” book; a manifesto.  Like the disheveled and bearded voices from the wilderness before me, I felt compelled to compile my thoughts (and broadcast them to the world).  If you are part of the knowledge-based channel, it’s an easy read.  The kind of book you can pretty much digest on the Delta Flight between Orlando and Orange County.  What’s more, the nice people at Amazon (who may or may not want to put distributors out of business,) will give you a discount on a copy.

Oops, long winded again. I guess it comes from early morning meetings and too much caffeine.

I hope he reads the book. I am pretty sure he will read this blog.  I hope all is well down south.

Thursday, May 1, 2014

Are we Crazy or What? 2014 Pricing Strategy

Just back from a whirlwind tour of distributor locations. There’s plenty to be thankful for. Business is still doing pretty well. Most of the sellers we hired last year have gotten traction at their assigned accounts. The same goes for the inside support and customer service people: the number of lines entered each month has risen steadily. Things seem to be progressing nicely with one exception: margin squeeze.

There are a lot of excuses for the lower margins. The internet boogieman, new competitors, purchasing people flexing their muscles taking more aggressive stands all get mentioned during the first few minutes. We talk about manufacturers being to blame for a portion of the woes. I ask a few more questions about the market. Then we turn to price points.

When asked how customer price levels are established, I repeatedly hear the same story.

“The salesperson sets the price, they’re the closest to the customer and understand the commercial situation.”

Then it dawns on me. A good percentage (as high as 30%) of these salespeople have been with the company for less than two years. Many were hired from adjoining industries; similar to ours but not the same. Some are new college graduates. A few are freshly minted engineers. None have detailed market price experience in our industry.

Most, if not all, of the training done for these guys is technical product training. Nobody talks about market prices, margins needed to maintain levels of business, or the cost to provide any of the services customers stand ready to consume. Training on negotiation or customer value is as scarce as the Iowa hen’s teeth. And in my 30+ years in this industry, I can count instances of market price related training on one hand.

But price related training takes place. Purchasing guys train our people about price. If our product doesn’t match the current needs, they tell our guys, “Your price is too high.” If the customer doesn’t like our service, procurement people say, “Your price was too high.” When we bomb the heck out of the price and come in 10% less than any competitor, the buyer says, “You were a point or two high, but I am giving it to you anyway.” Based on this constant string of misinformation, our new guys think they know the market.

Now for the “are we crazy” part.
Here are the facts as I see them:

• We are giving employees with just a couple of years’ experience the ability to set our price, limit our income, and control our future success.
• We are leaving the whole topic of price training to the evil ones in the customer procurement group.

• We are wondering why margins are going down.
• We justify our actions because new sellers spend time driving around visiting customers.

Ask yourself, how many years of experience in the market does your management team have? How many times in the early stages of your career did you discover you fell for a purchasing trick and left money on the table? Think about how complex the whole matrix of customers, price levels and product types can be.

I believe now is the time for distributors to put some discipline into their pricing process. Further, I attended my first Matrix pricing class over 25 years ago and have seen flop after miserable failure mostly because the distributor didn’t have the right combination of analytics, metrics and coaching points for their team.

If you don’t have a scientifically developed and well-defined pricing process, you need one. The process you select should feature not only analytics, but documentation, training and ongoing metrics. After looking at dozens of purported experts in pricing, I feel the state of the art in the field belongs to Strategic Pricing Associates. David Bauders and his team have
worked with over 350 distributors and I have had the opportunity to interview over 30 of SPA’s clients. Here’s what I have discovered.

Strategic Pricing Associates (SPA) is more than a “how to” book and way more than a consult with a plan. SPA combines scientific computer analytics with training, coaching and user friendly metrics to drive change. Their system works, the distributors I have interviewed all commented on two things. First, real impact to their gross margin percentage; the two points SPA advertises are real. Secondly, every Strategic Pricing client observes an overall improvement in the outlook of their sales team. One commented, “Our people used to fret over pricing issues. They didn’t really know the right direction to follow. Today, they work on the one thing that’s really important – providing value to our customers.” I believe this demonstrates what happens when we think differently.