You are here

Blogs

How Leading Sales Teams Drive Profitability

Body: 

Sales teams have historically been tasked with driving top line revenue to fuel growth and market expansion. They have within their control several strategic levers to affect sales outcomes. Among them are value propositions, product selection, pricing, selling strategies and negotiation tactics. Sales performance hinges on the effective execution of these levers. Companies invest heavily in their people to improve selling skills and effectiveness. In fact, U.S. businesses spend $20 billion annually on sales training programs to improve sales execution. The goal is to sell more.

Levers available to drive revenue also drive profitability. While managers commonly turn to costs or other functions to drive profit, sales organizations have more impact over profitability than other business functions. For example, consider three fundamental profit drivers: unit volume, price and cost. Sales teams certainly are charged with increasing sales volume which remains their primary responsibility. And, when sales reps have even the slightest authority to adjust pricing through discounting, they have a strong influence over two of the three fundamental profit drivers. Even the smallest changes in price have dramatic impact on profit. Additionally, changes to customer and product mix lie within the control of the sales team as well. Mix can have measurable effect on margins over time. 

Sales organizations are in a strong position to significantly boost profitability. Let’s define profitability as not only increasing gross profit by selling more but, in addition, the ability to lift gross margin. For example, gross profit can be increased from $500,000 to $600,000 by increasing sales while gross margin may remain unchanged at 37%. But, even more desirable is to increase gross profit and improve gross margin to say, 38.5% by improvements in customer mix or lifts in price. Simply selling more may increase profit dollars but not necessarily improve margin percentage. Sales teams are in position to improve both gross profit and gross margin.

Several profit levers are available to front line teams. For example, the ability to recognize and sell economic value counters buyers efforts to commoditize offerings and thereby provides opportunities to close more deals and capture higher prices. Measuring and comparing product and customer mix across sales reps reveals targets for improvement that drives margin. The ability to defend prices through better negotiations and avoid unnecessary price discounts has a direct impact on profitability. Measuring customer profitability identifies low margin accounts requiring remediation and high margin accounts that provide a target profile for enhanced margins. The awareness of price leverage on profitability, where even the smallest improvement in price impacts margins, opens the door for reps to identify sales with low price sensitivity where selectively higher price points can be captured. (A price increase of just 1% lifts earnings for the average U.S. company by over 11%.)

Companies that leverage the profit power in the sales function typically gain 1 to 3 margin points. That’s $500,000 to $1.5 million on $50 million in revenue. Outcomes will vary depending on current margin performance and industry margin levels.

For manufacturers, wholesale distributors and business service companies that have exhausted cost reductions the sales organization provides an additional channel to realize profit enhancement and is well worth exploring.

The Must-Have Sales Skill for 2017

Body: 

We are often asked by managers about how to improve sales effectiveness to drive revenue and margin. The answer is simple. Teach your sales team how to recognize and sell your value. Value based selling pays huge dividends. Nearly every company delivers benefits that create economic gains for customers. But, few truly recognize these benefits and fewer actually communicate them.

When effectively applied, value economic selling closes more deals and captures higher prices. Both generate more profit. Sales professionals aren’t just for driving top-line sales anymore but, rather, can make meaningful impact to profitability just by the way they sell.

So, how do you get sales teams to recognize and sell your value? That’s simple, too. Engage your team in training programs that install practical value selling skills. Sound programs contain three critical features.

·         Value Recognition-Create a value inventory that identifies quantifiable value. Measurable value is what buyers want to see and not just a list of features. You have tremendous value that may not be communicated effectively.

·         Value Economics-Help buyers make better buying decisions by providing the economics to support purchases. How does your offering deliver more value than the next best alternative?

·         Value Communications-Don’t be the best kept secret in your industry. Communicating your value is absolutely key to closing more deals and capturing more margins. Too often, we rush past our value in effort to close the deal.

If you are searching for ways to give your sales teams a boost for 2017, consider value sales training. PricePoint Partners offers Selling for Profit, an on-site training and coaching program that teaches sales teams how to effectively sell on value and defend prices. We deliver several of these programs every year and have many clients return for continued training.

As you prepare for a new year consider value selling to help create a competitive advantage in your industry.

Does Your Sales Team Have Enough Value IQ?

Body: 

Getting your fair share of price in the marketplace is dependent on your sales team’s ability to sell your value. The stronger case made for your value directly translates into the price you capture from your customers.  Is your sales team selling your value and capturing the best price? Or, worse yet, are you losing sales due to a weak value message?

Value is an often misused term that conjures up images of low quality and low price. Not so in B2B markets. Value refers to the underlying economics that support the purchase of an item or service. It defines the benefits of the offer that help increase sales, reduce costs, reduce risk or improve competitive advantage for the user. Presenting an economic case is a powerful approach to drive value perceptions and willingness to pay more.

Here are three critical elements that every sales team member must embrace in order to effectively communicate value and defend their prices.

·         Understand the Numbers- Take the time necessary to understand the economics in every sale. How will the buyer justify the purchase? How will they compare our offering to the next best alternative? This requires understanding how your offering helps the customer improve their economics. For example, think about increasing production throughput, reducing waste, increasing quality and increasing revenue. All of these benefits are measurable and should be presented at the time of proposal. Once you can talk dollars and cents you will move the discussion away from price and focus on value.

·         What the Customer Values- Don’t assume that you know what the customer values. Every buyer is different even in identical industries. Buyers like to talk about what they value. Using your basic selling skills, ask questions, (lots of them) that uncover their value needs and their picture of success in this purchase. Here are a few to get started.

o   How will you measure success of this initiative/purchase?

o   What business results are you trying to change? How much?

o   What would you consider to be a “home run” in this purchase?

o   How will you know when this initiative/purchase is a success?

Get the buyer to paint a picture of success.

·         Trade Value- Despite the best executed value selling process, buyers are trained to cut your price anyway. Be prepared for the discussion and be committed to avoid discounting your price. Instead, trade value. When the buyer asks for a lower price offer to reduce the benefits of your sale in order to maintain a balance in value. Buyers will quickly recognize that you are negotiating and not discounting. Discounts are not free.

Improving your sales team’s Value IQ begins with understanding the value selling process. We recommend starting with training and coaching programs that lay the foundation for executing value concepts. Additionally, include solid price negotiations training that give your team the confidence to present and defend prices in the marketplace. The net result will be higher close rates and improve profit margins through better price negotiations.

PricePoint Partners provides powerful training and coaching programs to empower sales teams to sell value and protect prices. For more information on programs that can improve your company’s Value IQ contact Ralph Zuponcic at 330-342-0923 or email Ralph at rzuponcic@pricepointpartners.com

Protect Your Pricing

Body: 

We just heard from one of our clients about a price negotiation that shocked their largest customer.  I want to share the story with you.

First, some background. We delivered a price and value negotiations training program to a rubber industry client less than two years ago. They learned how to defend and protect their prices against aggressive buyers and desperate competitors. The story that follows is directly from the CEO of our client.

Hi Ralph,

 Just another story on using your method of price versus value during a customer visit.  We had our largest OEM customer approached by our low cost competitor that was showing $350K in savings on a $1.2M account.  They wanted a 5% price reduction each year for the next three years and wanted to realize any savings that we made as a result of joint continuous improvement results. 

They called this a win-win situation for both of us. 

 I countered with a modest decrease due to rubber prices going down and shared the horror stories our customers that had tried our competitor had.  They were adamant in their demands.  I explained to them that maybe they just needed to have the experience with them to realize our value (they were shocked). 

I did tell them that when they returned, it would not be to the same prices they currently had, as they would be treated as a new customer, eliminating their 24% discount and we would no longer accept their credit card payment and related charges of $19K per year.  They asked us to think about what they wanted and counter offer if we could as their parent company was pushing hard.

I went back with our original offer but added another $5K in annual savings.  I gave them a progressive additional discount scale base on them increasing sales for the next three years, and told them we would share any documented savings we made collaboratively.  The additional discounts range from 1-3% based on increased sales levels and are covered by fixed costs in S&A not going up. 

Sharing the savings was no problem as we would get half of something we didn’t have.  With this they signed a 3 year deal. 

With what was a potential disaster turned out to be a positive looking deal to both sides. 

All the best,

Tom

This is a great example on how to protect your pricing. I see three key elements that made this a success.

·         Attitude – The negotiating team for this client believed that they deserved the price levels being charged based on long term quality performance. It’s easier to defend your value when you believe in your offering

·         Skills – The team had the right approach and was comfortable executing it in a difficult situation. Being prepared for price negotiations is absolutely key. Go forward with conviction.

·         Interruption – The greatest risk to any buyer is supply interruption. The client used this very effectively to increase the buyer’s anxiety. However, you must be prepared to “walk” if the buyer calls your bluff.

So, the next time you are faced with protecting your prices play offense and play hard. And, play with the resolve to win.

Stop Managing Your Margins and Watch Your Profitability Soar

Body: 

Driving profitability improvement throughout an organization can be achieved in a variety of ways. Any number or combination of profit drivers can be leveraged to improve financial performance. However, all too often we see companies focused on just the margins themselves and not what’s driving them.

Consider the sales team that is measured or rewarded based on margin. Margin performance can fluctuate over time based on any number of changes to profit drivers including volume, pricing, product or customer mix, and costs. Sales teams have influence or control over some, but not all, of these profit drivers. So why hold them accountable or reward them based on overall margin performance?

Instead, hold sales accountable only for the profit drivers they can influence. Take, for example, a wholesale distributor sales team. They certainly have influence over sales volume. It’s part of their job description to positively affect volume. They typically have influence over pricing, too. Through targeted margin-based pricing, discounting and promotions, sales teams influence prices every day. And we know that pricing has very high leverage on profitability.

Consider too, product mix and customer mix. Sales teams have at least some influence over what gets sold and to whom. This is one profit driver that is not measured in many companies but often cited as a reason for declining margin performance.

Finally, costs can have tremendous impact on margins. But the sales team typically has little or no influence over costs. So why hold them accountable for overall margin performance when costs are such an integral component of it?

The way to positively impact your margin performance is to manage more deeply into the profit drivers that impact margin. Margin is a result or outcome of these drivers and not a lever in itself. Identify which profit drivers are within the control of your sales team, or any other function, and manage those drivers to get your desired margin result.

In the case of the wholesale distributor sales team, you will manage volume, price and mix to improve margins. This means monitoring their performance on each of these relevant drivers, and reporting and rewarding accordingly. Because cost is not part of this equation, using overall margin performance as the basis for evaluating sales performance is neither appropriate nor advisable.

We recognize that this line of thinking may be a leap based on how you measure sales performance today. But think about it: Sales teams rewarded on margin will close deals based on margin dollars and tend to ignore the other profit drivers available to them. When you manage these drivers and hold your sales representatives accountable for them, they will pivot toward the profit drivers they can influence and, in turn, improve margin performance. 

Acuity Margin Management by PricePoint Partners is a cloud-based management tool the delivers data-driven actionable insights into margin improvement opportunities.

3 Hidden Profit Opportunities That Aren’t So Hard to Find

Body: 

The new year under way, and you’re searching for ways to improve your company’s profitability. No doubt, you have wrung costs to the minimum and continue to drive sales throughout your business . But where does your next margin opportunity lie? Where will you realize the greatest gain for your effort?

Look no further than your own invoice data (coupled with some cost data, perhaps). This data can reveal tremendous margin lift without the need for an analyst with a Ph.D. in mathematics. Some simple visualizations of the data make it easy to see the opportunities and take action. Better yet: Use an automated margin management tool to dramatically increase your speed to profit.

There are dozens of places to find margin improvement within this data; here are three to start the year off right:

Pay Attention to Sales Margin Performance

We typically hold the sales team accountable for generating top-line sales. However, looking at individual margin performance almost always reveals significant differences from sales rep to sales rep. While we realize that customer and product mixes vary across territories, an analysis of gross margins can reveal unexpected inconsistencies. Here is a simple way of visualizing margin performance.

  • Identify your most profitable salespeople and what makes them successful.
  • Identify your least profitable salespeople and target them for improvement programs.
  • Prioritize accounts by most profitable, and guide sales teams to focus their efforts on the highest areas of opportunity.

Measure Your Price Performance EVERY Month

If you read our newsletters regularly, you know by now that nothing impacts margins more than price changes. Improvement in price performance can significantly improve margins, while degrading performance decreases margins. Measure your price performance across your entire business every month. You may be surprised at how dynamic pricing can be and its impact on financial performance. Without measuring, you have no insight into how this powerful profit driver is affecting your company. Once you begin to measure overall performance, you can dig into the changes and identify the causes. We see few companies managing price performance even though it can provide huge returns. The charts below show how price performance can be tied to margin performance.

Manage Those Margins!

Most managers believe they have a handle on their margins. Yet, many are surprised at what we find when we analyze margins at the transaction level. The chart below shows the gross margin for every line item transaction for a wholesale distribution business. While management expected to see some transactions at negative margin, they were surprised to see the number of transactions below 10% gross margin. Margins at the extreme high end, on the other hand, represent opportunities for a shift in customer or product mix.

These three areas represent the tip of the iceberg. They are merely a starting point to help you analyze and improve your margins. Additional analyses are likely to reveal many more opportunities. The key is to identify areas of potential improvement and then take action to realize those improvements. By sharing your thought process with other decision-makers in your organization, and helping your sales team understand the potential rewards of their improved performance, you will foster the development of a culture that drives toward higher profitability.

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­_____________________________________________________________________________

Acuity Margin Management is a cloud based management tool that provides monthly actionable insights for improving profitability.  Analyses include price realization, cost, mix and volume changes along with price elasticity for sales reps, markets, product lines, SKUs and more.

PRICE NEGOTIATIONS - GET YOUR GAME FACE ON

Body: 

No matter what type of business you are in, at some point, you will likely be faced with having to negotiate for the value that your firm delivers. That negotiation will be on price. Whether you are looking for a price increase for your goods or services or the buyer has decided to cut your prices as part of his cost reduction program, you will be faced with defending your prices and value. The thought of price negotiations is enough for some sales reps to experience anxiety and fear. It’s no wonder. Often times our largest account push back on price and the fear of losing the business can feel very real.

However, having the right mindset can help calm the jitters and level the playing field in tough price negotiations. Here are three things that will help to get what you deserve at the negotiating table.

Put Your Game Face On

Buyers perceive price negotiations as a game. Their job is to reduce costs, not buy more product. Treat negotiations as a competition. In fact, it’s been said that pricing is a contact sport. Expect to get your uniform dirty. Buyers try to put you on the defensive with threats that will degrade your business. Don’t let them. Play offense and play hard. And, most of all, play with resolve to win. Having the right attitude can dramatically change the outcome of any negotiation. We’ve seen sales reps completely cave in on buyer’s demands for price reductions before attempting any negotiations whatsoever. In one case, the projected margin loss was $1.2 million.

Understand the Buyer’s Risk

Are seller and buyer relationships all stacked toward the buyer? Buyers would like you to think so. However, something keeps buyers up at night as well: SUPPLY INTERUPTION. Even more important than reducing costs is maintaining a continuous supply to an operation. Buyers are on the hook for supply at their firms. This is your lever of advantage. You are in control of supply.

This doesn’t mean that you pull the rug out from under the customer. But, slight hints or suggestions of supply interruption go a long way. Consider the sales manager for a large industrial distributor who was negotiating with a major account. The buyer wanted a price reduction on all existing business and suggested that he may look elsewhere for supply if he did not get the reduction. The sales manager simply asked the buyer if he should continue to plan for deliveries for the next month. The buyer quickly backpedaled. Buyers bluff. You can bluff too.

You Determine How the Buyer Treats You

Eleanor Roosevelt once said “No one can make you feel inferior without your consent”. With a slight twist, this applies to price negotiations as well. Have you taught the buyer to expect price discounts? Often, our historical practices determine our future outcomes. If we have caved on price in the past buyers will expect price concessions in the future. We become their “go to” supplier for cost savings. Don’t be on that list. Buyers know which suppliers will cave on price and which ones won’t. This dynamic can be changed fairly quickly just by resisting price concessions and negotiating with resolve once or twice. The buyer will get the message and move on to a softer supplier.

Resolve and the right attitude can go a long way in improving negotiating outcomes. Think of it as a game and play offense. Push back on buyers and understand their risks. In the end, you will likely gain respect and have a healthier relationship with your customer.

Three Greatest Pricing Challenges for Wholesale Distributors

Body: 

As the wholesale distribution industry experiences widespread industry consolidation, vendor reduction programs and growth in online commerce, industry participants are finding it increasingly difficult to compete for available volume and margin. While costs have been vigorously managed by most firms and sales volume gains continue to be pursued aggressively, the hunt for margin improvement eludes many distributors.

The opportunity to lift margins exists within the framework of strategic pricing management. How price decisions are made can dramatically impact margins and revenue. While most distributors have yet to leverage pricing, the ones that have embraced it have realized margin gains of 1-3%. A data-driven approach combined with an effective implementation program will achieve such results. 

Over 83% of all middle-market wholesale distributors in the U.S. are leaking 1.0 to 3.0 margin points as a result of ineffective pricing methodologies. For a $50 million distributor, that equals $500,000 to $1.5 million in lost profits that could be reinvested in the business or returned to stakeholders. Several factors contribute to this margin loss.

First, wholesale distributors inherently operate within a highly complex pricing environment. The large number of SKUs, customers and markets creates complexities that necessitate the use of pricing-specific technology. Consider the firm with 10,000 SKU items, 1,500 customers and five different markets. The number of possible price combinations exceeds 75 million. While it is unlikely that 75 million prices would ever actually be required in commerce, this example illustrates the level of complexity that exists in wholesale distributor environments.

Second, front-line sales teams are responsible for pricing execution without the necessary tools, skills or information to deliver optimal price performance. Many distributors rely on the sales team to adjust or even set prices on an item-by-item basis without the necessary supporting data to determine a true market-based price. Individual reps each have their own approach and subjective input, which results in pricing inconsistencies within market segments and product offerings.

When we put the front-line sales team in the position to influence prices without sufficient price guidance, we are basically sending them to battle without sufficient weapons. Most often, sales reps retreat on price to close the sale, nearly always leaving money on the table. In other cases, reps may unknowingly overprice a deal and lose the sale altogether.

Finally, centralized pricing analyses and pricing processes are often absent and prevent the opportunity to compare pricing outcomes among similar transactions. Historical pricing data is a powerful asset that, when combined with pricing technologies, can be used to determine market-based prices and lift profit margins. The application of centralized pricing engines is extremely effective and can be relatively low-cost.

What if each sales rep could leverage the collective pricing experience of the entire sales team?

Herein lies the solution for managing complex pricing environments. Faced with a new pricing event, we want to compare it to similar historical pricing events. The focus is on strategies for managing complex pricing in wholesale distributor environments using invoice pricing data to identify market-based price points from historical transactions.

The objective is to put pricing power in the hands of the sales team to increase sales close rates and lift profit margins.

Daily Price Decisions: Helping or Hurting Profit Margins?

Body: 

For wholesale distributors and many manufacturers, price setting can be a daily occurrence. A multitude of products combined with a large number of customers makes for a complicated pricing environment.

You add to that complexity when you give your sales team the authority to adjust prices on the fly. Pricing becomes a highly dynamic activity, and the sheer volume of activity makes it difficult for you to determine whether aggregated price decisions are contributing positively or negatively to profit margins.

Access to transactional data eases the process of measuring price performance. And since most company information & ERP systems can deliver the necessary data to accurately measure price performance, why not tap into that information?

Fundamental data requirements include a baseline data period with item description, price, and units ordered. These are line-item numbers for each individual transaction taken from sales invoices. The baseline is compared to a current time period to measure the difference in price and quantity ordered, which represents the change in price performance when summed across the business. Positive price performance indicates a rise in aggregate pricing and a positive contribution to margins, while negative performance points to a decline and a negative impact on margins.

However, data alone doesn’t always provide actionable insights. When we look at price performance, it is more helpful to visualize performance across a variety of scenarios that will lead us to action and results. For example, analyzing by sales region or individual sales rep can provide insights into weak performers who may require redirection or support. Or, analyzing price performance versus cost changes will call out product prices that may be losing pace with rising costs.

We recently identified a product group being ignored by a wholesale distributor that had lost significant margin over time as costs had escalated while prices remained unchanged. The company was focused on higher-volume product groups and was unaware of the narrowing margin gap.

The data required to perform effective analyses can be extensive depending on the type of business. For example, wholesale distributors can have very large numbers of transactions resulting in large datasets. To process the thousands of SKUs and customers, we recommend a cloud-based price and revenue management analytics package that simplifies the measurement, monitoring and forecasting of pricing actions, allowing for midcourse corrections as market conditions change.

Having insight into price performance and its contribution to margin provides a clear path to actions for margin improvement. Having the ability to quickly drill down into specific areas of price performance accelerates the analyzing process and delivers results faster. Still, few companies are taking the initiative to measure price performance, and even fewer are drilling down to identify opportunities for margin lift. Don’t wait. Harness the power of analytical tools that enable you to turn data into intelligence. That intelligence can make all the difference in your quest to boost margins. 

How to Win Price Increase Negotiations with a HUGE Customer: Case Study

Body: 

High-volume, high-visibility customers know they have negotiation power. That shouldn’t stop you from initiating price increases with them when they are warranted. Suppliers tend to back down under the pressure of negotiating with their biggest customers, and who can blame them? Rocking the boat on price issues sometimes puts your company at risk of losing the business.

But take heart: It is absolutely possible to raise prices, no matter how large your customer. This case study will show you how one specialty tool manufacturer’s strategy and tenacity earned them the price increase they truly deserved.


BACKGROUND

A manufacturer of specialty tools, 427 TOOL (alias), is about to initiate a price increase selectively applied across their business. Many accounts will see increases; the amounts will vary depending on the various levels of price sensitivity among items, customers and markets.

The customer, BIGWERKS (alias), is 427 TOOL’s third-largest customer, accounting for well over $2 million in sales. 427 TOOL has been serving BIGWERKS for over 15 years. The volumes are steady, but margins are diminishing. The last price increase accepted by BIGWERKS was in 2007. Since that time, 427 TOOL has attempted to execute price increases on two separate occasions with no success. BIGWERKS made the process grueling by intentionally prolonging any price increase discussions until 427 TOOL finally gave up.

Compounding matters is that the purchasing personnel within BIGWERKS seem to be constantly changing. Interruptions in relationships between sales representatives and buyers prevent any continuity in discussions, which has made it difficult to achieve price negotiation goals over extended periods of time. At this time, prices have remained unchanged for seven years and have now fallen below market pricing. Obviously, this has negatively impacted margins at this account for 427 TOOL. The 427 TOOL sales representative, Roger, is preparing for a long and drawn-out negotiation process.

THE PROCESS BEGINS

September 2013

Roger has scheduled a meeting with the buyer at BIGWERKS to present the price increase. The average increase amount is 3.5%. However, increases are applied selectively to individual items, and not all items will see an increase. Additionally, Roger has prepared a summary of rebates, trade show participations and other supporting services that 427 TOOL has delivered over the past several years to demonstrate the added value the company has provided to this important customer.

BIGWERKS buyer, Justin, listens attentively at first but quickly starts pushing back, challenging the rationale behind the increase. Additionally, he begins to paint a picture of growing opportunities for 427 TOOL in the future. Suggesting that larger opportunities lie ahead for the supplier is a common tactic used by buyers to move the discussion off of the increase. Many sales representatives react to this discussion; Roger does not. He knows the discussion is intended to divert attention away from the increase. He is committed to getting the increase and stays focused.

October 2013

BIGWERKS looks to solidify their position with 427 TOOL by offering a long-term supplier agreement. The agreement includes descriptions of promotions, rebates, trade show participation, warranty allowances and the like. There is no mention of the price increase in the agreement. 427 TOOL pushes back on signing the agreement, and BIGWERKS says that the agreement is not related to the pricing discussions. 427 TOOL signs the agreement but continues to push discussions on the price increase. Looking back, 427 TOOL admits they should have delayed the agreement until the price discussions were resolved. This minor setback, however, did not negatively affect the final outcome.

December 2013

Roger schedules another visit to discuss the price increase with BIGWERKS. At this time, the buyer asks for more supporting information to justify the increase. While they will provide information supporting cost increases of incoming materials, 427 TOOL’s policy is to not provide total cost information to customers.  Roger delivers the cost increase information, and further discussions are delayed by BIGWERKS until the new year.

January 2014

Discussions start heating up. Roger is holding tight on the price negotiations. He continues to communicate with Justin to maintain momentum in communications and send the message that 427 TOOL is not retreating on this issue. It has been five months since negotiations began.

Justin shares a critical revelation in one of his telephone calls with Roger: He tells Roger that BIGWERKS really does not want to lose 427 TOOL as a supplier. This knowledge instills renewed confidence in Roger and spurs him to continue on his path.

Then Justin reveals a surprise. He states that BIGWERKS corporate has mandated price reductions from all suppliers in 2014. Is this a real mandate or just an attempt to offset the increase? Roger recognizes that BIGWERKS is trying either to thwart the increase completely and actually get a price decrease, or to use the mandate to negotiate a non-increase. Roger will not settle for either of these options. He and the management team at 427 TOOL are committed to getting the increase. (Management commitment is a key component to any price improvement initiative.)

Roger presses on relentlessly for the price increase. Intense discussions continue over a two-week period. Justin announces that the BIGWERKS division vice president will participate in the next telephone discussion. Roger decides to add to his own horsepower and invites 427 TOOL’s president to participate in this phone conference.

The conference call lasts nearly two hours. 427 TOOL holds their ground on the increase, not wavering from the initial amount. BIGWERKS makes no offer to counter and insists on no increase. Interestingly, BIGWERKS is fighting to protect its reputation on not accepting price increases. They believe that if word gets out to the supplier base that they accepted an increase, other suppliers will attempt increases as well. Their unwillingness to counter is also noted. They are desperately defending their reputation on no increases. At this point, it’s all or nothing.

Committed to the increase, 427 TOOL continues to hold their ground and insists on the increase in whole. Finally, after nearly two hours of negotiation, BIGWERKS accepts the full increase, with only one caveat: that the increase will go into effect in June so that BIGWERKS has time to get the new pricing into their systems. 427 TOOL is happy to oblige.

WHAT JUST HAPPENED?

In a word, commitment. Sometimes it takes fortitude to get what you want in pricing negotiations. 427 TOOL hadn’t been successful in executing a price increase at BIGWERKS in seven years. This time, the supplier committed to getting the increase and showed the tenacity to not back down. BIGWERKS, based on prior experiences, believed that 427 TOOL would eventually give up. When they didn’t, the tone was set for a new pricing relationship between the two companies.

The commitment to executing price increases at large accounts can be significant. Below is a summary of time and resources that 427 TOOL incurred during the process:

  • Number of meetings or telcons           Approximately 12
  • Time commitment                               Estimated 40 man-hours
  • Amount of increase                            $90,000
  • Time to create pricing schedule          5 hours
  • Return on time invested                     $2,250 per hour

As Roger pointed out during our interview, the price increase goes straight to 427 TOOL’s bottom line. Other than sales commissions, the increase has no other costs extracted.

Each customer and each negotiation is different. In this case, reinforcing 427 TOOL’s position on the price increase was effective. Other situations may call for different strategies. Holding the line on increases, however, is a proven approach. It takes some courage and fortitude to execute, and it may mean bringing senior-level managers into the fray, but in the long run, it sets the groundwork for a more profitable long-term relationship.