Here’s a discussion with Gerhard Schwandtner, founder of SellingPower and host of the Sales 2.0 Conference. After decades in sales, Gerhard sees how the artificial divisions between sales and pricing functions lead to suboptimal results, and he offers some advice for improving the situation.
How does sales think about pricing?
Pricing is like the passport that gives you access into a foreign country. It’s a very critical issue. It’s 80% of the value that a company is offering. If you don’t have the right price, you don’t have a chance.
If you look at the competitive analysis, why do sales people lose to the competition, there are always two reasons: either the competitive sales rep had a better relationship or a better price, assuming there is a similar fit.
If the product or service doesn’t fit correctly, it’s not a price issue or a sales person issue. It’s a lead qualification issue at the beginning of the funnel.
What is the historical interaction between sales and pricing?
The people who manage the sales and marketing organizations have to play from the same sheet of music. In certain companies, they have a chief revenue office who orchestrates between sales, marketing, and sales support. Complexity comes from the subdivision of certain functions. When you have a situation like that, you need greater integration efforts.
Pricing analytics are even more important than analyzing the sales funnel. [Emphasis added.] In most companies, the price is made up by somebody who looks at the cost side, but a price is a function of 2 factors– what does it cost to produce, and what is the value in the market and how much are people are willing to pay for it?
For example, I deal with a lot of speakers, and I ask what they charge. Some will say “I charge $5,000 per day.” I ask them how they know if this is the best price they can get in the market place and they say that this is because this is how other speakers charge. This is leaving pricing to chance because they are not analyzing their pricing. Have they tried to charge $7500 or $10,000? No. They are going with what is common and getting common results. As a result of these conversations, they charge more and they call me up and say they should have tried this years ago.
The same applies to any product or service. If you never try price testing, if you only go with what others are doing, you are not getting the best return on your investment.
What type of training does sales get in pricing and price negotiation?
That is a very good question. Most sales people do not get any negotiation training. This puts them at a disadvantage because most buyers are trained in negotiation and they know how to extract concessions, and fake walking away. Sales people are who untrained leave a lot of money on the table.
Why are companies not paying more attention to the problem of leaving money on the table?
Companies feel they are doing well enough, and they do not know what they do not know. A lot of sales leaders do not have enough time to explore how they could squeeze more profitability out of their sales organizations.
The economy is forcing everyone to take a harder look at how they run their sales organization. There is a tremendous drive to improve the productivity. How do they get better people? They need more hunters. People are moving a lot of sales functions to inside sales to save costs. They are spending a lot more time analyzing what they need to teach the sales reps, and also harvesting the collective intelligence of the sales organization. They are also looking very closely at sales technology that can deliver predictable ROI in a short period of time. Sales 2.0 is a huge opportunity for everybody, because there are over 1000 sales technology tools that sales leaders can explore. There’s more know how about sales processes and more science available around people, such as tests and behavioral profiles to help managers reconstitute the sales force.
Is there a risk that there is too much choice, too many paths?
We cannot stop learning. There is always the illusion that when we reach the next level, whatever that may be, that we can sit back and relax and enjoy the spoils. That illusion does not lead to progress. The moment we stop by being curious, we are cooked. The law of evolution mandates that we need to learn faster than everyone else if we want to stay ahead. There is no silver bullet that can eliminate the need for vigilance. As a sales leader, you need to be a productivity vigilante.
Is there a risk that desperation for revenue can lead to sales teams bringing in unprofitable business?
Smart sales leaders look at the reality of the market place. In a recession, you need to bring in 30-40% more leads just to stay in place. Pricing really starts with getting the right leads into the sales funnel. This means attracting prospects that have the need and the budget for your solution. Pricing and lead management need to work hand in hand. If you’re not doing a good job with lead management, you will end up with a lot of garbage in the sales funnel. The reps will chase the garbage trucks and come back saying the price is too high. You need a clearly articulated value proposition that lets customers understand the value you bring. If you don’t have one, and your reps can’t articulate it clearly, you have no chance of surviving.
How can sales 2.0 technology help improve the relationship between sales and pricing?
One issue is the mindset around pricing. Pricing is not like a statue. Pricing is more like a river. Pricing as a statue is the old approach. Everyone has one price and if the customer didn’t meet it, you lost the sale. Today you can’t walk away. You need to match price with value. Price is the science. Value is the art. You need to be build an artful value structure around the price, so the customer can say “the price looks a little high, but this really meets my needs.” The pricing people and the sales people need to have periodic reviews to go over the total value proposition with the customer. You may have to make adjustments for certain markets and certain conditions.
There’s a story I like about 3 guys who buy a movie theater. One guy wants to charge $15, redecorate the lobby, and cover the seats with leather. The second guy wants to charge $12 and cover the seats with vinyl. The third guy says “let’s charge $6 and cover the seats with people.”
How is the evolution of sales and the death of transactional selling impacting pricing?
Price explains how the product is made and price justifies the cost. Value justifies the purchase. For the buyer it’s all about the value. The rep should never quote a price before you establish the value. It’s totally self-defeating.
How do you handle buyers who want to know the cost?
We are moving towards a conversation economy. The old model of selling was a symphony orchestra, where everyone says the same thing. Now, it’s more like jazz, where you listen to a riff from the customer, and respond appropriately, and you co-create the sale. Depending on the quality of the conversation, you have a confrontational conversation or a collaborative conversation. As a sales per
son, I don’t want to be in a position to quote a price without having an opportunity to discuss value.
For example, you want to buy a camera with a telephoto lens. You have done some online shopping and found a lens that goes from 70-200mm that goes for about $600. You call a store and ask for a price. The rep can quote the price, but they need to understand what you are using the camera for. If you are trying to capture safari pictures, they can tell you that 200mm is not enough. Consider the 100-300mm lens that is available for $500. They have found a better solution for less money, and they get an instant sale.
If they just want a price, it’s a transaction, not a conversation, and you don’t need a sales person. They can do it online.
Thank you, Gerhard for the insight the wonderful musical metaphors. There you have it. Sell value. Coordinate pricing between sales and the rest of the organization with period reviews. If your sales team is just quoting prices, they can be replaced by a website. If you are chasing the wrong leads and can’t sell value because they don’t value what you offer, you’re not going to make it.
Of course, we wholeheartedly agree with the importance of pricing analytics and arming reps to compete in purchasing negotations. If you can’t see what you’re doing or where you’re going, you’re probably not going to get to the right place. Especially in this environment. You can get more information on Mimiran solutions for these areas.