Many distributors face the challenge of their customers shopping around to get the best price. This is especially true when it comes to near-commodities. However, what companies don’t know is that customers also shop for the best price among your employees which can often lead to a decrease in potential revenue.
The biggest challenge is identifying when a customer is price shopping within your company. Sometimes it can be hard to tell when it is happening and even harder to stop it.
Let’s look back on a post from our partner, Mark Tomalonis with WarehouseTWO, as he explored how you can spot and stop internal price shopping.
Is Your Company’s Customer Pricing Out of Control?
Not maintaining control of your customer pricing can have a significant impact on your business. This is especially true when it comes to profits. If you have a salesperson who is routinely offering lower rates than others on the sales team, then that can quickly lead to diminished profits. Here is a simple test you can conduct to see if you have a problem with sales pricing discipline in your company.
A Simple Test
Individually, ask each of your employees whose job it is to handle customer inquiries and orders and what they would charge a new customer for a specific quantity of a specific item. If you notice that all of your salespeople did not give the same answer, then you have a pricing problem.
Customer Price Negotiation Tactics to Guard Against
Without "sales pricing discipline" within your company, your customers may be taking advantage of your team. Here are two of the most common tactics used by customers to get a lower price:
Asking for a better price. Anyone who has been in business longer than a day knows that a potential customer is going to ask for a better price. However, there are ways around just passing out lower rates. Try one of the following techniques or combine a couple the next time someone asks for a better rate:
- Defend and justify your pricing
- Say no politely and transition the conversation back to the benefits of your product
- Have a conversation with the customer and ask why they think a lower price is reasonable
- Offer to give a lower rate if they order more
- Offer to give a lower rate if they commit to more business
Referring to Historical Pricing. Selling to businesses is a little trickier than selling to consumers. For one thing, most B2B customers will know exactly what they paid for every item they have ever bought from you.
Which means that they will expect to pay the same price they did the last time they bought the item from you. Many customers understand that price increases are a natural part of doing business, but they will still attempt to get a lower rate from you. Simply apologize and politely say no, most customers won’t push back and typically agree to the new price or will negotiate.
Steps to Increase "Sales Pricing Discipline"
Here are few suggested actions to get better control of customer sales pricing at your company:
- Establish default pricing rules and clearly document them. Having clearly defined pricing rules that are adhered to by all employees is more important than what those rules are. Is your rule, “list price for all new customers”? Is it, “mark up all costs by 30% for new customers”? Regardless of what it is, just make sure that all of your employees know and follow the rules.
- Program default pricing into your ERP system. Your ERP system ought to be capable of programming a price for every standard item (i.e., in the manufacturer’s price list) or standardly configurable item (such as hose assemblies made from standard price list components). By programming your ERP system properly, you avoid salespeople having to manually determine a sales price.
- Program customer-specific pricing into your ERP (business software) system. If your ERP system cannot do this, maybe it is time to shop for a new ERP system. The cost of upgrading your business software just might be recovered by greater "sales price discipline" throughout your company.
- Establish an exception/escalation process. A simple set of pricing rules cannot apply to every inquiry. “One size does not fit all.” But you should have a clearly defined and documented process for establishing exceptional pricing. For example, require that exceptional pricing be approved by a supervisor.
- Train your employees how to respond to customers’ requests for a lower price. Do your employees know how to say “no” to a customer, diplomatically and professionally?
- Measure your staffs’ pricing behavior. Most modern ERP systems should be able to recognize when system-calculated pricing has been overridden on an order line-item. Create a report that captures these events. Review this report with offending employees, and their supervisors, at least monthly. This can help identify opportunities for additional training on how the company pricing rules are set up.
- Have consequences for not following your sales pricing rules. Establishing and enforcing consequences for sales pricing rules is important. If employees know they can get away with not following rules, all your hardwork will be for nothing.
How Can Tribute Help Identify and Prevent Price Shopping within Your Company?
We understand the challenges that distributors face, including internal issues like sales pricing disciple. Our TrulinX ERP system helps you track and maintain your pricing integrity for all the products you sell. To learn more about the TrulinX software or to speak with one of our team members, give us a call today at 800-874-2883 or contact us directly.
WarehouseTWO, LLC is an independent “inventory-sharing” software tool created exclusively for durable goods manufacturers and their authorized distributors, and for any group of durable goods “peer” wholesaler-distributors, such as members of a buying/marketing group or cooperative. To learn how inventory-sharing with WarehouseTWO can help your business, visit the WarehouseTWO website, or email email@example.com.