Don’t Lose an Order Based on Price

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Let’s start with two quotes from great thinkers from
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!

Invest in your team of rookies and re-energize those experienced sellers! 
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!




This is an affiliate link. To read more about these links, click here.


 

 

 

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