Strategic Pricing with Brent Grover
Brent Grover, President — Evergreen Consulting
• WayPoint Analytics • distribution management best practices • profit strategy • management strategies • pricing strategies • industry perspective • Wholesale Distribution Industry • distribution industry trends • new opportunities for distribution industry • distribution industry intelligent pricing
Monday, October 17, 2016—Pricing is an important aspect of profitability. I recently sat down with Brent Grover from Evergreen LLC, a company that specializes in strategic pricing which is a way of making sure that you've got the right price on each product for each customer every time. While delivering at a low price is great, you might be underselling the market and subsequently leaving money on the table.
"When I'm talking to a company about their strategy, the topic of conversation always turns to pricing," Brent begins. "I'll ask how the company does its pricing and, when they describe the practices, it sounds like it's really great: management has control and the salespeople are all well-informed individuals who always follow the rules. However, the more you let them talk, the more you find out that the salespeople are really autonomous, almost as though they're in business for themselves. They get the cost of the items, they pretty much ignore what you tell them, and they just set the prices on their own."
In WayPoint Analytics' role in helping provide profitability analytics to a lot of companies, we also see this free-for-all pricing fairly often. There are wide variations in the profit performance in different territories and different customer segments. This is a glaring indication that people don't have a modern pricing scheme.
"My follow-up," Brent adds, "is to ask if the client is happy with the current return on investment. Often they realize they should be doing better, but either they don't know what's out there or are afraid of damaging the sales they have now. When it comes to any sort of change, there's always resistance on the sales end. Part of the problem is that the salespeople's and the company's interests aren't always the same."
"The typical branch-based distributor sales force is on commission, and their commission is based on gross margin dollars," which encourages salespeople to offer discounts just to get the sale. "I'd like to see some companies using commission compensation based on operating profit, not gross margin, because there's something of a conflict when you're paying the salespeople on gross margin and you're paying the shareholders on net."
This structure seems to put the sales force at odds with the objectives of the company and the company's stakeholders since it incents the sales force to hang on to every single sale that they can get, even if it's only a $1 margin. They also don't seem to have much of a stake in change that primarily benefits the company. That makes salespeople who have been doing something for a long time and perceive the method as working even more resistant to change that could hurt their bottom line.
When discussing the implementation of strategic pricing, Brent noted, "almost all of the pushback that our clients ever get is from their own sales force, and they get almost zero pushback from customers. While a client may lose a few customers, the ones they lose usually aren't great customers anyway and the increased profits more than make up for it."
The key to improving profitability through pricing is getting past salespeople's resistance and finding smart ways to close the gap between the salespeople's and the shareholders' interests.
For more information about Brent Grover, visit: www.evergreenconsultingllc.com