Strategic Price Alignment with the Sales Team
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.