Nov 3, 2021 | Sales, Strategy
Your pricing architecture should be driven by your business model.
Your tactical pricing decisions should be driven by the immediate competitive and market pressures.
They are different, and while not mutually exclusive, are, or should be, largely separate.
Business models generally evolve slowly, so pricing architecture changes slowly with them, but the tactical needs can vary daily.
Get the two mixed up at your peril.
Years ago I was in a meeting with the MD of the business I was working for, the GM of sales, and a senior manager of one of the retail gorillas, who was trying to extract substantial trading term concessions from us. The sales personnel had been under extreme pressure for some time, but had resisted successfully. The MD was ‘summonsed’ as a last resort by the retailer. Towards what became the end of the meeting, the retailer played the ‘ego card’. He observed that he had thought the MD had the authority to make decisions, but it seemed he had been wrong. The MD, sensitive to challenges to his ego, responded that he was indeed the man who had the veto authority, and proceeded to agree with some face saving but essentially useless caveats. This changed in a moment the pricing architecture of the business for the worse.
It proved to be a profound strategic mistake.
Sales people are often given the authority to vary prices tactically, but should never be given the authority over the architecture. Not because they cannot negotiate, but because they should be kept entirely separate to maintain the integrity of the pricing architecture and the connection to strategy.
In the story related above, the Sales manager had been explicitly denied the right to offer changes to the architecture without agreement of others in the senior management group, but retained complete tactical authority. This meant that there were agreed limits and trade-offs that he, and those who reported to him could make during a negotiation. This tended to hamper potential (read ‘promised’ by the retailer) volumes, but cushioned margin and ensured similar customers were receiving the same terms, within which the sales force was able to vary tactically to leverage our position as best they could. The MD by contrast had the power over the architecture, and the concession on the architecture completely moved the tactical ‘needle’ against us.
It is very hard in a highly contested market to move prices up, and very easy to move them down. The change in architecture moved the whole field for negotiation down which substantially impacted on long term margins. In addition, it also confirmed in the retailers mind that the ‘bottom line’ for the sales force could be further moved by challenging the architecture.
That business, sadly, no longer exists.
Oct 18, 2021 | Branding, Marketing, Sales
In competitive markets, price is a bit like a game, typified by the ‘prisoners dilemma’ of game theory, where two players acting in their own self-interest will result in a suboptimal outcome for both.
In the classic scenario, you have two people, suspects of a crime held in separate rooms with no means to communicate.
The copper tells each of them that if they confess and testify and the other does not, you will go free.
If you do not confess and the other does, you will get the maximum sentence of 3 years.
If both confess you will both be sentenced to 2 years.
If neither confesses, there is enough evidence to have you both serve 1 year.
The result is that if the prisoners act out of self-interest, the result is worse than if they had cooperated.
When you consider this in a competitive duopoly market, to keep it simple: what happens if one party cuts its price?
The other has the choice of cutting theirs to match, which inevitably results in less profit for both if competitor two cuts their price in response. However, if the reaction of the second mover is to keep their prices up, they might sell less, but very probably make more profit. The price cutter will be relying on selling more at the lesser price to increase profit, or grabbing market share which is usually the driver, because of the added volumes.
Given most organisations have KPI’s around sales volumes, the temptation to cut prices in the face of competitive activity is almost irresistible, despite the profit impact which is often ignored.
The Fountain Tomato sauce story: I joined Cerebos back in 1981. Fountain Tomato sauce had a share in NSW of about 40% of volume and 50% of value. Fountain sold for .72 cents for the 600ml bottle, I remember the numbers well. A short time after I joined, discounter Franklins brought out No Frills tomato sauce, on shelf for .69 cents,
The sales force was in a panic, as Fountain was a big part of their sales and they insisted that we had to drop the price to match No Frills or lose huge volumes.
I did the numbers, and convinced the marketing manager, and MD to overrule the sales manager, and we put the price of Fountain up, so it was on shelf at .81 cents, and we started advertising: ‘Rich Red Fountain Tomato Sauce’
The logic was that Fountain at .72 and No Frills at .69, were very close, so the consumer found it sensible and easy to save a few cents, as after all, they must be pretty much the same if the price was so similar.
However, at a price difference of .12 cents, very substantial in percentage terms, but not particularly significant in the mix of a weekly shop, consumers figured that they had to be very different. Fountain had to be the far better product, and the advertising we did confirmed that view. More tomatoes, no filler, ‘Rich Red Fountain tomato sauce’. Our volumes did drop marginally, and our profits went up.
This outcome was not just instinct, it was based on research and experience.
‘No Frills’ margarine was the very first cheap housebrand on the Australian market. It was proposed and supplied by the business that at the time owned Meadow Lea margarine, my employer. I had done quite a bit of research after the launch of No Frills margarine to understand the consequences, and so was lucky to be in a position where I had some understanding of the dynamics that were at play, without at that time having any solid idea of the psychology that drove them.
Later, both Fountain and Meadow Lea allowed the retailers to dictate their strategies, so redirected advertising funds into price promotions, boosting the retailers margins and destroying their brands. Both Fountain and Meadow Lea are now just ‘also-rans’ in their markets, (judging by shelf presence) and neither would be anywhere near as profitable as they were in their heyday.
The lesson is that the intense pressure to reduce price as a competitive reaction is almost always a very bad choice. Resist the pressure and protect profit, without which you will be out of business.
Jun 28, 2021 | Collaboration, Marketing, Sales
In many major companies, there has been a number of new positions created in the last decade to try and accommodate the changes in the strategic and competitive environment.
Among them has been the ‘Chief Revenue Officer’ (CRO)
In some cases, this reflects the need for increased collaboration and sometimes convergence of marketing and sales. In others, it is just the fashion, the latest management fad.
This seems to be particularly the case in businesses where another of those-acronym driven fads has evolved, ABM, (Account Based Marketing)
The barriers to the integration of Marketing and Sales are high, and deeply set into the functional status quo of most organisations, and highly resistant to change. However, the emergence of digital tools has accelerated the trend, and the recent Covid challenges have been a catalyst for further and quicker evolution than would otherwise have been the case.
For years I have been advocating ‘Alignment’ of marketing and sales to the needs of specific customers, and the ways to achieve that outcome.
Removing the Marketing and Sales labels has proved to be useful to the integration. The emerging combined function recognises that the responsibility of each is simply Revenue Generation, or ‘RevGen’
The first substantial consulting assignment I had 25 years ago introduced my client, a domestically owned multinational supplier of ingredients to the food industry, to Strategic Key Account Management. (SKAM)
We went through a process of identifying the specific needs of key customers, and tailored our marketing and sales effort, to the expressed and often jointly uncovered needs of customers, with whom we engaged in the process.
Those workshops and subsequent implementation efforts are as relevant now as they were 25 years ago, probably more so. It is now just a component of Revenue Generation, a descriptor of the best way to make profits by delivering value to customers.
The core assumption of SKAM is that that only by doing one or more of the following, could we be successful.
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- Assisting our customers to increase their sales,
- Actively reducing their costs,
- Increasing their productivity.
We set ourselves the task of identifying how we could achieve at least one of those three things, preferably two, and focussed our efforts on delivering those outcomes.
Predictably, it was a successful initiative, customers loved the collaboration. Inventory levels reduced, as customer service levels and responsiveness increased, generating increased trading profits.
Perhaps it was too successful, as the business was then sold by its parent company, at a very high multiple to a multinational competitor.
May 11, 2021 | Communication, Customers, Marketing, Sales
The old cliché that a picture is worth 1,000 words is disproved again and again, by all the pretty websites and dumb marketing collateral material out there, that is useless.
While pictures have a valuable role in grabbing attention, the real commercial value is delivered by the words that express the value proposition and call to action to the potential customers who turn up.
We are in a competition to gain and keep attention, then to move the reader to a decision. That decision may be that your product deserves a place on the ‘maybe’ list, or to the next point in the sales process. A successful sales process is always moving the potential customer towards the transaction.
Human beings scan their environment, instinctively leveraging their mental frameworks to filter out the stuff that does not matter. Our subconscious organises and filters information, leaving cognitive capacity to deal with the threats and opportunities that emerge. We do not see anything that does not have to do with survival, love, relationships, doing better, some sort of challenge, danger, unless for some reason, it is specifically relevant to us at that moment.
When someone sees our website or collateral material, their brain on autopilot filters out the stuff that is not directly relevant. Somehow, we need to cut through those automatic barriers that exist.
Story is the best way of doing so.
They are the evolved format that can deliver the information that reflects ambition, challenges, a plan to conquer the challenges, unexpected hurdles, and last-minute success. This is the standard format of every story, if you do not use it, or some derivation, the reader will skim over your site and not take in anything at all, effectively not ‘seeing’ it.
Formulas are the assembly of best practise; we use them because they work.
That is why stories work, it is the formula that feeds into the cognitive patterns used by our brains.
The key to a story is clarity. Who is the hero, what he/she must do to win, what happens if he/she does not win, what happens when they do?
What problem do they have, what does the outcome look like when the problem is solved?
Noise kills, the noise from inside and outside our business.
From inside, the clutter we spray around, the ambiguity of what we are saying confuses what others hear.
We need to clarify the message.
How many potential customers go elsewhere because they do not understand how you can help them?
When you need someone to help cut through your clutter, give me a call. It will be a worthwhile investment in clarity.
Apr 26, 2021 | Customers, Sales
Our sales efforts are often focussed on what we perceive to be customer pain points. Solve a problem for them, remove the pain, and you have a sale. So, the logic goes, and as far as it goes, it is pretty good.
However, an analytical look at the pain points of customers rather than just making broad assumptions can pay dividends. Such an analysis is a part of every useful key account planning session I have ever constructed.
As with most examinations, a frame of reference adds to the value of the discussion. It usually evolves that pain falls into a few categories.
Financial pain points. The most obvious and common. You can save them money, either by offering cheaper alternatives, or by increasing the productivity of the option they are already using. The latter strategy is always better, as ‘cheaper’ can quickly become a slippery slope. I would never use the term ‘cheaper’, always ‘better value’
Process pain points. You can help them build their productivity by helping optimise their processes, to get more out of the same investment, Always a welcome outcome.
Sales pain points. When you can assist a customer of yours to increase their sales, they will be forever grateful, and reward you with their ongoing business.
Strategic pain points. The most severe pain is often not self-inflicted, it comes from outside, from things that cannot be controlled. The best that can be done is to anticipate and plan your response. Assisting a customer to survive and prosper by helping them identify and consider their response to emerging pain points, always works well as a sales strategy.
The key is to put yourself in a position so that you can identify their pain points. This can take a considerable amount of research into the company, and their competitive and strategic domain. By this means you can add value to their efforts by application of the solution to the problems that emerge. This applies equally to existing customers, as well as key potential new customers, although emphasis on ensuring existing customers remain in the tent is almost always more productive..
In my experience, this customer research pays great dividends, tactically and strategically.
Apr 21, 2021 | Management, Sales
The best word in sales is ‘Free’, it will close more often than any other, by a long stretch. However, being free also implies there is no value to the ‘buyer’ and in any event, it is not really a sale. Only when there is an exchange of some sort can it be termed a ‘sale’
At best a ‘freebie’ is a ‘bait’ of some sort that may lead to a sale.
As a freelancer, I am tempted often to give away a lot of time and advice for free, partly to demonstrate expertise, which may lead to a sale, and partly because I am asked, and am able to do so to help. It is also partly because I find it difficult to just say a flat ‘No’
Recently I had some assistance from a professional to address a problem. It was someone I knew quite well, and have helped a bit in the past, pro bono. As I turned up for the appointment, I was asked if I had some time afterwards so the professional could, as it was stated, ‘pick your brain‘ in a specific area where I have deep expertise. As it happened, I did have the time, so said it was OK.
The upshot is that I gave away an hour delivering expert advice, while paying full tote odds for the appointment and professional advice I had gone there to obtain.
Stupid me.
I should have used the second most powerful word in Sales.
‘No’
It is hard for us to say ‘No’.
We all like to be liked, we like to be asked, and to be seen as an expert, and we do not like to be seen as ungenerous, or even a jerk.
However, is my time and expertise of any less value than the professional I was talking to?
As humans, we also want what we cannot have. Wanting something just out of reach is a driver of behaviour. Saying ‘No’ moves the opportunity to learn something or get something that is just out of reach further away, making it more attractive, and adding to the perceived value of that something.
Watch what happens at contested auctions, as the price goes up, those remaining in the bidding become more desperate to win.
There are many ways to say ‘No’, but the essential element is that it must be clear.
If you apologise, say ‘Sorry’, the door remains open, and you feel a little guilty, when there is no need for you to apologise.
If you say ‘I can’t’, does that mean you cannot now, but might at another time?
If you offer a range of excuses, the ‘No’ remains ambiguous, and everyone is confused.
Remembering that ‘No’ makes you more attractive, you do have options.
- Just be firm and say, ‘No’ I do not do that.
- ‘No’ I do not do that, but here is someone you could ask.
- Redirect back to you. Again, several sub options:
- ‘No. However, email me a few simple questions, and I will try to answer them quickly’
- ‘No, but I do offer calls up to 60 minutes for $XXXX fee.
- ‘That is a complex question, usually only answerable after a detailed examination, for which my project fee is $XXXX.
Use one of these, and the chances of some sort of conversion are real.
Unfortunately, in this case I did not follow my own advice, and so know that the hour I spent outlining the solution to the problem will not be valued and implemented, so we will have both wasted our time.
At least, I got a blog post out of it, so maybe there was some value after all?
