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B2B Sales Training

Hold Your Ground on Price Increases

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Do you experience this situation? One of your largest and best customers hasn’t had a price increase from your firm in a long time. Maybe it has been 3, 4 or even five years or more. You may have made attempts in the past only to get shot down by the buyer over and over again. Now, your profit margins on this account have diminished over time and you really need to change the momentum in price negotiations.

What can you do? Actually, there are several possible tactics to help change the momentum in this game but we will only discuss one today. First, we must understand how the buyer works. Buyers will first test your price and then test your resolve. Will you adhere to your price or will you cave?

Buyers push back because so many sales people easily cave in. They have learned that pushing back works. However, the buyer knows who will cave and who will hold on price. Buyers are less likely to push back on those that have a history of holding firm to their price. If you have had as history of caving on price, try this. When a buyer resists simply explain again the reasons for the increase. Return the discussion to the points that you originally made that support the price increase. Yes, you will repeat yourself but we want to send a message to the buyer that there is no room for negotiation. You may decide later to negotiate but we need to resist the buyer’s push back at first.

You might notice this technique is commonly employed during television interviews where the interviewee wishes to avoid the topic or stall the interviewer. Restating your reasons on a topic reinforces your position and sends a message the interviewer (or buyer) that there is no room for negotiation. Remember, the buyer is taught to test your resolve. If they can get no movement on your part they will often retreat.

Strategic Pricing: Get the Sales Team On Board

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Moving a manufacturing or distributor organization toward a strategic pricing capability requires the development of skills and resources to set pricing strategy and perform analyses among a variety of other crucial elements.

A key function that is often overlooked is the sales team. This is the point where pricing strategies are executed and we rely upon the sales team to carry value messaging and price negotiations to the point of sale.

Teaching sales teams how to deal with price issues is an important first step. Get team members involved in the pricing strategy phase early in the program to get buy-in and create a clear understanding of the program objectives. 
 
The first step the pricing training experts at PricePoint Partners teaches the sales team is about selling the economic value and its impact on profit margins. While pricing training will go a long way to helping sales professionals effectively manage price issues, there is on aspect that needs to be addressed: the issue of sales incentive plans.
 
If sales teams are incented on sales volume you stand practically no chance of getting them to support price improvement initiatives. Their focus will continue to be selling more volume with no attention to price or profit margin. Do you blame them?
 
If your sales team is incented for profit margin you are only part of the way to gaining their attention on price. Every sales professional knows that they have no control over costs and see margins as something they can only impact with volume. Little attention is paid to price.
 
The solution to getting the sales team to focus on price improvement is to reward them for better price performance. This is most impactful when sales professionals have the ability to impact prices through discounting.
 
Set price targets for each product at the beginning of a time period (i.e. at the beginning of a fiscal year). Then, track each sales rep’s actual realized price throughout the time period for each product. Reward them for achieving prices over the target level and detract from their incentive for performance under the target price level.
 
In the end, you will be impacting profit margins because price changes fall straight to the bottom line. And, you will be driving sales team pricing behavior in a positive direction.
 

Strategic Price Alignment with the Sales Team

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The greatest challenge to any distributor pricing strategy program is getting the sales team on board. If the sales team does not buy in to the program it is likely to fail or fall well short of the intended results. This is particularly true of sales teams that are rewarded for sales volume. These programs reward higher sales volume at any cost. Sales reps are focused on getting orders at any price. Even if sold at a loss.

Rewarding sales teams on profit margin is a step in the right direction but most often falls short of the desired outcome as well. When faced with getting the order or maximizing the price, the rep will tend to reduce price instead.
 
The best solution is to reward the sales team on a combination of factors including volume and price. Yes, price. If your sales team has some authority to adjust price through discounting why not give them an incentive based on price?
 
Consider setting a baseline price for each product at the beginning of the year. Then, reward reps for achieving or exceeding the target price. Measure the difference in target price and realized price and reward the rep accordingly. 
 
When done correctly, our team of pricing consultants typically see a rapid change in the reps attitude toward price in a positive direction. You will see less requests for price discounts and margins will improve dramatically. 
 
Click here for more information on Price Point Partner's pricing strategy training program.

Price Increases: It’s All in the Preparation

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Depending on the industry that you participate in, increasing prices may be an annual part of the industry culture or it may not. Some industries increase prices on a consistent annual basis.

These pricing strategies actually train the buyer to accept increases and reduce the push back seen in industries that change price infrequently.

The key to getting customers to accept increases lies in the preparation. Here are a few helpful hints from the pricing consultants at PricePoint Partners to making your price increase go smoothly.

  • If you are raising prices due to cost increases, be prepared to share your actual cost increases with the customer. However, only use this data if necessary. Present supporting cost data only after the buyer has resisted the increase.
     
  • Be sure that your sales team is well prepared for price negotiations. Equip them with several backup strategies in the event of buyer push back. If the buyer resists, consider deferring the increase for 30 days. Or, removing something from the deliverable that reduces the value of the product. Sales professionals will present price increases with confidence when they know they have a strong back up plan.
     
  • Customers don’t like surprises. Let them know that an increase is coming. This will make the announcement more palatable.
     
  • Practice your price increase presentation with smaller customers first. This gives you the chance to practice and develops confidence when it’s time to present to your biggest customers.

As in any competition, preparation is the key to getting the very best results. Take it from the pricing experts at PricePoint Partners, spend the extra time to prepare for price increases, and you will see your net realized increase improve.

 

Value Based Selling: Identify Your Value Inventory in 3 Steps

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In our past blog posts; "Seven Key Questions to Uncovering Economic Value" and "Value Based Selling: Win Price Negotiations on Value," we provided value based selling techniques to help manufacturers and distributors maximize profits during price negotiations.  Our pricing experts direct on how to use the value your product or service brings to the buyer to get the price you deserve.  So how do you quantify the value your product or service delivers?

Value for manufacturers and distributors is comprised of a number of elements designed to deliver benefits to the customer. A basic value framework consists of two elements that are measurable and one that is not. Measurable elements include items that reduce business costs or risks and increase business performance.

1) Quantify reductions in business costs or risks:

• Labor costs
• Transportation costs
• Material costs
• Product or manufacturing defect rates
• Floor space requirements
• Warranty returns

Each of these elements is easily measurable and can be presented to the buyer in quantitative terms.

2) Quantify increases in business performance:

• Orders
• Sales
• Throughput
• Cash flow
• Profit margins
• Web-based inquiries

Each business has its own measurable value elements that are critical to its business success. The key is to identify the most important value points for each buyer or buying influence.

Finally, intangible benefits may be considered. However, the inability to measure these features makes it difficult to consider when selling economic value.

3) Emphasize additional intangible benefits:

• Innovation
• Morale
• Reputation
• Brand awareness
• Employee retention

It is very worthwhile to spend time with your team identifying all of the economic value elements your company delivers to customers. You may be surprised at how many value elements you can identify. For best results, conduct this exercise in a team environment. And remember: Quantifiable value is key. Intangible value like morale improvement is helpful but takes a back seat to quantifiable value.

Your objective is to assemble your economic value argument in the form of an ROI or whatever metric the customer uses to make buying decisions. Rather than argue price levels with weaker intangible benefits, sellers are now in a strong position to negotiate pricing on a level playing field with the buyer. Each party is talking dollars and cents. The buyer will try to remain focused on the price point while the seller will focus on the delivered economic value.

The pricing experts at Price Point Partners deliver your manufacturing or distribution operations team with experienced advice and proprietary tools to analyze your current pricing, propose a more profitable pricing strategy and teach your sales team how to maximize profit with our Selling for Profit™ onsite business to business sales training program. Contact us for more information at 330-342-0923 or fill out our contact us form and a pricing consultant will be in touch: http://pricepointpartners.com/pricing-consultant.

Free Guide: Value Based Selling

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At Price Point Partners our pricing experts see a growing trend of buyers pushing value aside in negotiations, and prices being discounted in order to make the sale, or keep the customer.  Unfortunately, the profit margins for the seller suffer substantially in this process. Our pricing consultants estimate that unnecessary price discounts, starting at the sales level, cost manufacturers and distributors  2-4 margin points every year!

 

In other words, profit leaks at the sales level are one of the most overlooked and undermanaged threats to most manufacturers' and distributors' profitability.

 

The solution? Teach your sales people value based selling! In order to help combat excessive discounting, PricePoint Partners has created this free value based selling guide explaining how to sell value – specifically, the economic value – of your products and services. Selling economic value helps reduce discounting and improves sales close rates.   Click on the link below to access this exciting new guide.

 

How to Turn Your Sales Team into a Profit Engine
 

A White Paper for Manufacturers and Distributors

For more information about PricePoint Partners pricing consulting services and our Selling for Profit™ business to business sales training workships to enforce your value based pricing strategy with value based selling techniques, contact PricePoint Partners at 330-342-0923 or fill out your contact information here, and our pricing experts will get in touch with you.

 

 

 

Pricing Strategy: 5 Price Resistance Guidelines

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How often do you experience price resistance from buyers in your business? In some businesses, this is a daily occurrence.  When buyers push back on price there may be any number of factors that are driving their behavior including incentives, competition and personal bargaining needs. How we react to price resistance says a lot about our own company’s self image.

Just this morning I met with a machining company owner who told a $10 billion customer that he would not accept the customer’s demand for a price cut. What happened next? The customer moved the business to a different supplier, but only for a short time. And, later returned to pay full price.

Here are 5 guidelines to help you work through price resistance issues when buyers push back:

  1. Remember that even the smallest price discounts can have a dramatic impact on profit margins. The average U.S. company will see an 11% drop in earnings with an innocent little 1% price discount. Negotiate fiercely for every percent knowing that even the smallest amounts have a meaningful impact on margins. Learn more about pricing leverage with our profit improvement calculator.
  2. Discounting your price is only one response to price objections. Trade value by reducing deliverables in the offering. Look at delivery time, payment terms, product performance reductions and other value elements in order to make up for lower prices.
  3. Don’t assume that your price is too high. Competitors may be desperate at end of fiscal periods as they drop price to meet volume goals. This may be short lived. Or, perhaps the buyer’s price expectations are too low. I recently bought a car and after visiting three dealers I realized that my price point was lower than what the dealers would agree upon. In the end, I paid a little more.
  4. Buyers will first test your price. Then, they will test your ability to adhere to that price. Professional buyers are well trained to be persistent in their demands for lower prices. However, we find that when sellers resist price cuts the buyer will often move on to the next vendor in order to meet their cost reduction goals.
  5. Like the machining company owner above, just say no. With an effective value based pricing strategy, you can answer price resistance with confidence. It's like what Warren Buffet said when emphasizing the distinction between price and value to investors; "Price is what you pay. Value is what you get." 

The key to handling price resistance is to be prepared. Have confidence in your pricing strategy, have a plan ready at all times and don’t be afraid to push back.  For help developing a more profitable pricing strategy, or for value based selling training, contact our pricing experts at 330.342.0923, or fill out our contact us form and a price expert will get back to you.

Pricing Strategy: 3 Mistakes to Avoid When Increasing Prices

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The Three Greatest Mistakes in Increasing Prices

When our price consultants initially engage with a client in the manufacturing or distributing sector to improve profits through a new pricing strategy, we occasionally uncover a history of blundering price increases.  Increasing prices is a fact of doing business for most manufacturing and distribution companies and when handling price increases with finesse, nothing to fear.  Your client-base will understand that as variable and fixed costs rise you are faced with the decision to adjust your prices in order to maintain profit margins. It’s no easy task - which is why we see so many companies realizing far less from their price increase initiatives than what they had originally planned.

So, what is actually happening that creates such disappointing results?

Here are three key mistakes that many manufacturers and distributors make in increasing prices and how to correct them:

1)  The Exception Becomes the Rule:  Management sets plans to increase prices that typically apply to nearly all customers. But, as the plan is executed the sales team argues for exceptions among their customer base. One by one, customers who were originally targeted for increases are removed from the implementation list. The list grows without anyone tracking the exceptions and by the time the increase is actually implemented a significant population of the targeted customers never see the increase.

Exceptions become the rule.

Correcting the situation requires monitoring the exceptions and placing limits. Keep a list of which exceptions are allowed and set specific requirements for approval. And, limit the number of exceptions allowed. It’s OK to just say NO.

Arming your sales people with value based selling strategies laid out in our "Five Price Negotiation Back-up Strategies - Be Prepared!" will help them present the price increases in a manner to reduce push-back and successfully navigate through buyer resistance.

2)  The Peanut Butter Approach:  Most often companies will apply a uniform price increase amount across the entire line of business. While this approach is simple, it leaves money on the table. Instead, determine precisely which products have been impacted by which specific cost increases and adjust accordingly. It doesn’t mean a different amount for each product. Apply increases to product families or product groups that have similar cost structures. The more specific you are in determining price increase amounts the easier it will be to explain and negotiate with customers.

3)  Invoicing Errors:  We are surprised at the number of companies that work hard to sell price increases that never appear on invoices. One manufacturer failed to add the increase to 30% of their customers. When they discovered the mistake six months later it was too late to reclaim the lost increase and it required that they sell the increase to the customer again.

Managing price increases requires close attention and discipline. Assign someone to manage the details and be responsible for the outcome. Monitor net realized increase amounts and manage exceptions carefully.

Wondering if your business is ready to roll out price increases? We would be happy to provide a price analysis, or bring our One-Day Pricing Workshop pricing course to your team. Contact one of our pricing consultants and we'll provide you with a free 30-minute consultation to help you determine the right path to pricing excellence.

Top Five Price Negotiation Strategies

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In selling price increases to customers our pricing consultants' experience has shown that not all buyers will cheerfully accept the increase. Most will push back to some extent in an effort to eliminate the increase or reduce it. How do we respond to insistent buyers?

The answer: Be prepared. If we suspect that the buyer will push back we need to have a back-up plan. That is, what will we say and what will we offer in response? Other than just saying “no”, which is a perfectly acceptable response, you should have several back-up plans in your hip pocket ready to present at the first hint of buyer resistance.

The following value based selling strategies will help your sales team better negotiate with tough buyers when price increases are on the table. Note that these are presented in a chronological order that minimizes price surrender from first to last. In other words, each is designed to give back the absolute minimum amount of price increase.

·         1st: Trade Value:  Remove delivered value in the form of benefits from your offering that offsets the price increase. Extended services, product features, payment terms, delivery are just a few places to start. See our past blog post "Value Based Selling: Win Price Negotions on Value" for more details on this approach.

·         2nd: Defer the Increase:  Defer the price increase to a later date. Emphasize that the increase amount is not negotiable but can be delayed for 30, 60, 90 days. Predetermine the time period before the meeting.

·         3rd: Trade for Volume:  Offer to trade the increase for additional sales volume.  Be sure that the additional sales volume profit dollars are equal or greater than the gain in price increase gross margin. Downside: The profit margin percent does not improve.

·         4th: Swap:  Swap products to a lower priced product. May result in a lower or higher profit margin percent.

·         5th: Reduce:  As a next to last resort, reduce the amount of the price increase to a predetermined level for this account. Determine a pricing floor before presentation.

We find that in many cases when the buyer sees that you are serious about the increase they will accept it at the full amount. Remember, buyers first test your price and then test your resolve.

Each of these steps is designed to give back a minimum amount of price in order to protect your profit margins while still offering something to the buyer.

For more information on how to use our business to business sales training to align your value based pricing strategy with high-level value based sales techniques, contact our pricing experts regarding our on-site b2b sales training Selling for Profit™.

The Price of Discounting

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The practice of discounting prices is common in many industries. Often times, sales teams have some ability to discount on their own with additional authority levels that can be tapped with their managers. While many discounts are necessary to close a sale or encourage certain buying behaviors, there are many other discounts used unnecessarily.

Either way, there is a significant “price” that is paid at the sales level for price discounts. Let’s consider a sales person who is closing a sale for $100,000. And, the gross margin on the sale is only 20%.

What if the sale is closed at a 10% discount or $90,000? How will this affect the company’s profit goals? Could value based selling avoid having to apply the discounted price all together?

With a 10% discount and a 20% gross margin the sales person will need to sell an ADDITIONAL $100,000 in product in order to make up for the profit dollars given away by the discount. That’s double the original sale!

When faced with this reality most sales people find a way to close the deal without a discount. Of course, with higher margin products, the required additional sales to achieve break-even are reduced.

The next time you are considering a discount, think about the additional sales required to make up for the margin that is given away.

At Price Point Partners, we not only help develop value-based pricing strategies, we help to train the business to business sales team on how to implement value based selling techniques in order to avoid discounting and maximize profits.  In our Selling for Profit™, value based sales training, Price Point Partners incorporates an easy-to-use chart to show your sales team the additional sales required to reach the same profitability goals after price discounts are applied. Contact us at 330.342.0923 and we will be happy to send you a copy, discuss your value-based pricing strategy and how your business to business sales team can align their skills to sell at full price and maximum profit.

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