Three senior executives from multinational industrial gas company Linde Gases discuss the value of trust and psychology in turning pricing analytics into front-line profits.
Roger Britschgi (Head of Sales Operations), Robert Krieger (Managing Director), and Pierre Nicollier (Director of Sales), from PanGas AG discuss the value of trust and psychology when it comes to turning pricing analytics into front line profits.
The case for improving pricing
Robert Krieger (Managing Director): We are based in Switzerland, which has a unique situation. Our prices tend to be a little higher than in other countries, so we have to be fair and transparent about any price increases. Making matters more complex, we had been in a period of offering price reductions, so customers were expecting more of the same rather than price increases. It was a big challenge to argue for why prices needed to go up.
Pierre Nicollier (Director of Sales): Before we started on an effort to transform our pricing, we had a scaled pricing system already in place. But we did not have full transparency into our pricing situation. A customer with the same product and size had different pricing. It just wasn’t right.
Roger Britschgi (Head of Sales Operations): We also had a basic foundation in pricing analysis, which didn’t provide pricing recommendations with enough granularity or clarity for our sales reps to trust them. What happened in practice, then, was that every year we had price increases based on scale and volume, but not based on science. Our people just didn’t think it was possible to do it any other way. Quite frankly, our people were not well prepared to convince our customers of the need to increase prices.
Making it happen: Strong arguments and leadership support
Roger: We implemented an advanced pricing-analytics capability, but just as importantly, we focused on building out a system so that all this great analysis would actually lead to more profitable outcomes for our sales reps. Training for our sales reps was absolutely critical. We started with explaining exactly what we were doing, what benchmarks we were putting in place for pricing rules, and how our pricing analytics program created pricing recommendations. This was all about gaining the trust of our sales reps who would have to “sell” these prices to our customers. Then we provided the right argumentation for why we needed to increase prices. I can’t emphasize how important this was. In sales, the most difficult thing is being able to come up with stable and convincing arguments for raising prices.
Robert: From the very beginning, it was critical to show that leadership was behind this new approach. We did this by going beyond nice words to working on the project with our sales reps and joining them on visits to difficult customers. We believed in our pricing recommendations, and during these customer visits, we were able to not only help our sales reps but also show how good argumentation worked. We were very conscious about displaying a “yes we can” attitude. It’s important to note that price increases sometimes aren’t achievable in one step. In many cases, it takes a few rounds of more modest increases until you get to the recommended price. That’s just the reality of the marketplace.
Pierre: Again, this was about transparency. We made sure that the sales reps understood what they had to do and what the arguments were. This was not about giving orders for a new way of doing business; it was about providing the “why.” And then success bred success. At first, our sales reps were nervous about going to our customers with price increases. But they had good arguments that we helped prepare. And after they saw it work a couple of times, they were eager to do additional visits. It’s about building confidence.
A new culture of pricing
Roger: There were three main changes to the way we did business after we implemented our pricing approach based on value. (1) We used to do mass pricing, but now it’s more smart pricing, which is about communicating value. There is no one-size-fits-all anymore. (2) We used to do pricing once a year; now we do it daily. Pricing needs to be part of a daily conversation. And (3) our pricing used to be based on volume, and now it’s based on a multitude of factors that are evaluated for each customer.
Pierre: We had great success with this approach, but something else also changed fundamentally. Our people learned to talk about pricing again. Pricing is always such a negative topic because we’re always under pressure to defend prices. But we learned that we had a right to raise prices and that there were good reasons for it. Our arguments were about what our products do. We became very clear that there is value for every benefit that our product has, and that has a price.
Robert: It is essential to talk with customers about prices. I put the subject on the table and make it an important focus of the conversation, not a slightly embarrassed afterthought. That makes a big difference.
The psychology of pricing to build trust
Robert: Our salespeople in many cases are as close to our customers as they are to our company. If a customer loses faith in his/her salesperson, that rep is unhappy. Having clear arguments about why prices need to increase, what the value of a product really is, and where the numbers come from is fundamental to building trust with both our sales reps and our customers.
Roger: In building trust, we had to make sure that the pricing recommendations that the model spat out were credible, i.e., not too far away from the current prices. If a recommendation is to adjust prices 20 to 40 percent, for example, the sales rep immediately thinks about how difficult that is to explain to the customer.
Pierre: There is really an important psychological element here in providing the tools, logic, and transparency needed so that both the sales reps and ultimately the customers trust the prices. These approaches essentially provide the sale rep with a way to bridge the gap between what the price is and what the price should be in a way that the customer understands and accepts.
Developing sound arguments
Pierre: If you have a product and believe in it and understand the value of it, then you have a much easier time creating arguments for what it should cost. Our sales reps have to know what they’re talking about. Reciting product specs just doesn’t work.
Roger: We had a one-day workshop where we discussed the products and services, the associated costs and the created value. Based on that, we laid out the arguments for increasing the price , and then we collected the best five to ten points to share with all the reps. We also recognized the need to prep for the customer visit, so we reviewed and adapted the arguments based on the anticipated customer viewpoints.
Robert: It’s a basic tenet of sales that as soon as you talk about prices, you’ve lost the game. Our emphasis was on selling the value of the product in a clear, accurate, and convincing way. Then you can talk about prices. Frankly there is still room for us to create a more systematic way of developing, sharing, and improving our pricing arguments.