July 23, 2013
Being part of Sales Leadership means you have a responsibility for ensuring that new client acquisition, upsales, services, etc., are profitable sales. But, all too often what happens is that Sales Leadership inadvertently or blatantly derails profit because they “justify reasons to adhoc the pricing structure.”
How many times have you discounted “just to get the business” in order to hit your numbers or were fearful a client would leave if you didn’t discount?
When it comes to pricing and discounting, you may be surprised by how some actions you are inadvertently doing are negatively impacting the profit margins.
Management is quick to say the price should be “x” but then just as quick they end up doing things that make “x” price unattainable. Management will doubt they would do anything like this, but they do time and time again. Below are just a few of the critical mistakes that management makes which greatly reduce or eliminate profit margins.
1. Pricing Concessions
Management has developed a habit over the years of making price concessions anytime business slows. Salespeople who have been with a company for any length of time will pick up on trends they see. If the company has a habit of offering price concessions anytime the business slows, then salespeople know all they have to do is wait for a slowdown to occur and a lower price will soon follow.
2. Customer Loyalty
Management allows certain customers to pay lower prices because they’re afraid they may not want to pay the regular price. This happens far too often in companies with long-standing customers. Management allows for a select group of customers to pay a lower price, problem is the sales force knows the reason the customers are getting a lower price is because management is afraid of them.
3. Do Whatever It Takes
Management uses such terms as “what is it going to take” or “how much lower is our competitor’s price” when strategizing with a salesperson regarding how a customer might respond. Having these types of discussions undermines the confidence of a salesperson. This is certainly not what the salesperson set out to do by having a planning meeting before the sales call, but that’s what they wind up doing.
4. Do As I Say, Not As I Do
Management goes on a sales call and in front of the salesperson begins discussing price with the customer in the context of offering a lower price. A sales manager might have good reason to get feedback to help deal with a long-term issue but by bringing up the topic in front of a salesperson it does only one thing, undermine confidence.
5. Alternative Pricing Strategies
Management develops alternate pricing strategies to allow a customer to avoid having to pay a higher price. Marketing can be very quick to play this game all in the interest of being prepared for whatever might happen. Problem is when strategies like this are developed they quickly become the norm and nobody winds up paying the list price.
6. Sales Education Issues
Management refuses to educate the sales force as to why the full price is the right price. Old-school management theory says keep salespeople in the dark and by doing so they’ll stay focused. Sorry, that truly is old-school. When management keeps a sales force in the dark the first thing that emerges is what I refer to as conspiracy theories which are only one thing, destructive.
Pricing strategies are not something to be developed quickly. Just as important is to not destroy the well thought out pricing strategy by doing any one of the items listed above.