Don’t Lose an Order Based on Price
different and definitely not distribution backgrounds.
"A favorite theory of mine is that no
occurrence is sole and solitary, but is merely a repetition of a thing which
has happened before…"
Mark
Twain
“Those that fail to learn
from history are doomed to repeat it.”
Winston
Churchill
There are no history books for
those of us in the Knowledge-based distribution world. While I consider myself to be a history buff,
I am certainly not an official historian.
But, to quote the popular commercial, I did spend the night in a Holiday
Inn Express. Probably more than a
thousand nights in various hotel rooms while earning a living in the
distributor business. So here is my
attempt at writing history.
All the TV pundits are calling
for a recession. Other industries, like
the semiconductor and software industries, are currently in recession. A Wall Street Journal survey of economists following
the July-September Quarter revealed that 54 percent of economists feel we are
entering a recession. Our industry is
going through something.
Here’s some data we released to
our clients earlier this week (quoting myself):
“Most manufacturers are
running their plants at lower than optimal levels. Some report they have reduced workers to
32-hour weeks. There have been some
announced layoffs.
Two major names are
mentioned on layoff.com. Others are
probably below the radar, yet we continue to hear stories.
For distributors, it is
important to understand the business model for manufacturing. Manufacturers
live in a world of fixed versus variable costs.
When their factory utilization drops below a certain point (usually
between 65-75 percent) their profitability wains. It makes sense many of them have dropped
below the ideal percentage.”
What happens next?
This is the point where history
repeats itself. Thinking back to other
times when low factory utilization was an issue (like in other recessionary
periods around 1991, 2001, and 2008) manufacturers took measures to get new
business.
If distributors were not told
directly, you can bet your bottom dollar on the manufacturer’s direct sales
force being told this:
“Don’t lose an order based
on price…”
If history repeats and I believe
it will.... The result was a price
war. Price wars damage distributor
margin levels. Assume margins will be
under great pressure.
It’s important to be
prepared.
Rather than be surprised by
history repeating, be prepared. Here are
a few actions I believe every distributor should consider.
Distributors should maintain a
list of ongoing opportunities. Not just
opportunities ready to fall/convert/close for your own business, but every
opportunity. This even includes
opportunities where you have low levels of certainty for getting the order,
i.e. your competitor’s business.
Each of your salespeople should
identify which opportunities could be price-sensitive. If they don’t do a good job with tracking
opportunities because they “hate paperwork, are too busy selling, or don’t
believe in CRM systems” now might be a good time to convince them. This will be war – going to market without
data is akin to marching off without bullets.
Offense and Defense
I like being on the offensive. If your supply partner delivers the “no price
is too low” message to your organization, having a good list of target
opportunities will increase your ability to “pick off” business that might
otherwise go to a competitive distributor.
These conversions will increase your market share and provide sales
growth. If managed well, there will be opportunities
to increase margin percentages once the economy improves.
Your organization will be a more
powerful force in the market and be able to get more business via the tide that
raises all ships.
The best defense is a good
offense. I was going to make that a
quote but there are equal numbers of people attributing it to George Washington
and John Madden. But you can assume
competitors will be attacking your business with lower prices from their
suppliers.
Again, this calls for a review
of existing business and near-term opportunities for price sensitivity. It also reinforces the need for good data in
your CRM system. Perhaps now would be a
good time to double down on your efforts here.
I recommend that you shore up
your prices by taking all direct negotiating power away from your sellers. Some readers will view this statement as pure
heresy, but there are good reasons:
·
Many customers will attempt to weasel
discounts. My guess is Purchasing
Departments are “boning up” on asking for lower prices. Not every situation is truly price-driven.
·
This takes the pressure off new sellers who are
not accustomed to the price dance.
·
Talking to a manager slows down the process and
gives the seller a little more time to gather facts.
Spend time talking about price
sensitivity from the customer's vantage point.
Be prepared to make necessary price adjustments if competitive pressure
warrants the move.
Don’t make these most common
pricing errors:
·
Discounting a manufacturer’s products across the
board rather than selectively. Just
because a few very visible items are being negotiated, giving away gross margin
on every product provided by a manufacturer is unnecessary and it allows your
organization to make added margin on products that are only occasionally
purchased by the customer.
·
Setting a long-term pricing agreement without
defined plans for handling price increases, returns, and other details that
could rob future gross margins.
·
Not asking for something in return for price
concessions. Customers receiving pricing
discounts should be asked to expedite payment terms, agree to fee-based
warranty support, and pay a greater share of the freight and other logistics
costs.
If history repeats, will you be prepared?
We are at the point where you can either prepare for these
(potentially) coming events or hope that I am wrong. If you would like to talk more, argue, or
whatever-- give me a call.
Finally, if you haven’t read my new book you can check it
out below.
If you're a regular reader, you know how we've been discussing sales tips and
techniques here since
2008. In order to keep things fresh, we took on this huge project of interviewing over
200 salespeople and their sales managers about their rookie strategies. This labor of love took over four years, thanks to COVID, and is now available on Amazon!
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It's easy to follow and a fairly quick read.
We will also be launching a mentor group next week! Shoot us an email if you would like more details!
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