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Practicing good pricing discipline

Pricing is easy isn’t it?

• We all think that we are experts but few of us are

• We think it’s macho but really it’s not

• Good sales people do not use price as a • Good sales people do not use price as a tool

• Pricing is a process which can be managed

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Setting the price list; consider the following

• Set a price to reflect the product’s value

– If there is an existing market this is set by the

price achieved by competitive products

• Know their list and net prices• Know their list and net prices

• Estimate their average prices

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There is usually a spread of prices in the market

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average price

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net price

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list price

Setting the price list; consider the following

• Set a price to reflect the product’s value

– If there is an existing market this is set by the

price achieved by competitive products

– If there is no existing market this is set by the

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– If there is no existing market this is set by the

price of the nearest equivalent product with an

adjustment to reflect the relative value of the

new product

Setting the price list; consider the following

• Set a price to reflect the product’s value

• Allow room for the sales team to negotiate; this is a cultural issue!

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Setting the price list; consider the following

• Set a price to reflect the product’s value

• Allow room for the sales team to negotiate; this is a cultural issue!

• Make sure that the expected discounted

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• Make sure that the expected discounted price delivers intended profitability

Setting the price list; consider the following

• Set a price to reflect the product’s value

• Allow room for the sales team to negotiate; this is a cultural issue!

• Make sure that the expected discounted

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• Make sure that the expected discounted price delivers intended profitability

• And ensure that it is consistent with growth and volume objectives

Setting the price list; consider the following

• Set a price to reflect the product’s value

• Allow room for the sales team to negotiate; this is a cultural issue!

• Make sure that the expected discounted • Make sure that the expected discounted price delivers intended profitability

• And ensure that it is consistent with growth and volume objectives

• Control prices centrally

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the salesperson: price freedom

• Limit the salesperson’s price freedom

– Train him or her to use it sparingly

– Referring back is not a sign of weakness it’s a

sign of how carefully we manage price

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sign of how carefully we manage price

– Don’t tell the sales team what our costs are or

what our profitability is; it’s their job to secure

sales in line with our price policy

– Don’t allow a sales person to discount to

below the expected average price

Don’t let him or her reduce the average price

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average price

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net price

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list price

maximum discount

the salesperson: discounts + commissions

• The best sales teams are incentivised and incentives should be related to price

– A sales person should get maximum

commission if he or she sells at list price

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commission if he or she sells at list price

• If sales people are allowed to discount their commission should reduce

– There should be a residual commission if the

maximum discount is given

• If a salesperson is allowed to exceed this maximum the residual commission remains

In front of the customer: setting up the negotiation

• Focus on non-price arguments– Make sure the sales person can spin an

credible and honest cost of ownership story

– Don’t forget the value of service

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In front of the customer: setting up the negotiation

• Focus on non-price arguments

• Think about the buyer; if he or she needs a discount be prepared to give one

• Don’t dignify competitor prices by

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• Don’t dignify competitor prices by discussing them

• But listen to the customer; be alert to constructive guidance

In front of the customer: doing the deal

• Everything has a value; give everything a price in the quote and on the order

• Make concessions on lower priced items where the % can be bigger

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where the % can be bigger

• Or inflate the quote so that the net price is minimally discounted

• Be mean with discounts: if we need to give 4.8% give 4.8% and not 5%

• Be vary wary about setting a new floor

Be very very wary of setting a new low

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average pricefloor price

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net price

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list price

maximum discount

In front of the customer: major accounts + OEMs

• There are no standard discounts– OEMs may get a discount because our selling

expenses are lower

– Major accounts may get a discount because of their market leverage

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of their market leverage

• In both cases the discount gets negotiated and reflects the importance of the account to us– It is specific to the account

In front of the customer: sometimes we don’t win

• Don’t expect to win every order

– But make sure that we win our fair share

– And know what the fair share is

• When we loose understand why we’ve lost

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• When we loose understand why we’ve lost and update the win:loss ratio

– But if we win celebrate!

• Don’t leave a low price on the table

Finally: manage it

• Never go soft on price

• Be brutal: net all discounts off the printer price

• Measure price performance

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• Measure price performance

• And remember: the salesperson is unique in the company in being the one person responsible for everyone else’s salary

Finally: manage it

• Never go soft on price

• Be brutal: net all discounts off the printer price

• Measure price performance

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• Measure price performance

• And remember: the salesperson is unique in the company in being the one person responsible for everyone else’s salary

• But he or she can blow it all with one lousy bit of pricing!

• david.jenkins@i2i-management.com

• +44 1223 236232 or +44 7739 758859i2i-management

http://uk.linkedin.com/in/jdavidjenkins

Contact me!

http://uk.linkedin.com/in/jdavidjenkins

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© David Jenkins and i2i-management.com; 2010

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