Imagine you supply soup. You sell millions of tins of soup to thousands of supermarkets across a vast set of regions. Having a single price for each tin of soup you supply would certainly make life easier, but you would also be missing out on massive potential profits.
This example may oversimplify the point, but it brings out in sharp relief a fundamental pricing issue across B2B markets today: Companies do not price their products in a way that reflects the value of the product in each local environment. To do so requires a number of capabilities, but one that is often overlooked is a fundamental and sustained change in the mindset of the sales force (yes, the sales force, not just the pricing team). We have found that turning your sales force into a pricing powerhouse leads to a 2-5 percent additional return on sales.
Powering up the sales force
Most B2B companies have a pricing team, but few elevate the function to a high level of excellence. This group often performs an array of important but basic functions, from capturing pricing intelligence to providing pricing guidance on new products to providing analysis of competitor negotiations. That’s a good start, but in our experience, it’s not enough. Because their teams don’t have the necessary capabilities, companies are still missing substantial opportunities to adjust prices and increase profitability.
Really successful companies empower their sales force with the right tools and capabilities to get better prices. In many cases, this kind of support leads to sales reps attaining higher prices than those imposed from above, because they know the customers and have a better sense of the local competitive situations and opportunities. Sales reps at a large engine-manufacturing company, for example, identified a potential price increase of 6 percent over two years—well above the 2 percent target set centrally.
The sales force also identified which customers would accept the rise and which would be likely to look elsewhere. The 2 percent target set by upper management, by contrast, was just a blanket price rise, which historically had created a lot of issues because it was hard to defend it with every customer.
The new breed of sales rep uses insights about the customer, advanced pricing analytics, and strong negotiating skills to get the best possible price. Unfortunately, this sort of sales rep doesn’t come ready-made. While recruiting can bolster pricing capabilities with new talent, more often companies need to transform the salespeople they already have. Here’s how the best companies do that:
1. “Co-create” the right tools for the job
Companies are awash with data, but sales reps may not have access to it or know how to interpret it, and it's rarely granular enough for sales managers to make informed pricing decisions.
Introducing tools that provide transparency into the price of different product-customer combinations is helpful, but in many cases still overwhelming. There is, however, no single “magical” tool that will solve this problem. What’s needed is a tool based on what the sales rep needs and how s/he might use it for a given company’s unique situation. Simplifying the analytics output, for example, through user-friendly visualizations (e.g. color-coded deal ratings) is important.
Even a good tool, however, is meaningless unless sales reps have faith in the prices it recommends. To build confidence in the tool requires involving the sales team early and often in the development process. An important byproduct of this process is the “soft training” of salespeople by helping them to become familiar with the tool itself. Many of the rules and analysis are based on assumptions that the sales reps need to challenge, test, and inform. The tool needs to work within the processes that sales reps are already comfortable with, rather than force an entirely new set of processes and behaviors on them.
To accurately guide sales reps on what price they should achieve, deal-target pricing tools should enable real-time comparisons to similar deals, tailor pricing to each customer’s profile (e.g., sales history, volume, product mix), and have the flexibility to factor in "local" considerations such as competitive intensity and market conditions. These tools are not directive but show a range of pricing possibilities, empowering reps to make decisions based on their knowledge and understanding of real-time factors affecting the deal.
One medical-products distributor decided to empower reps by building a deal-target pricing tool they could use to determine the right price for every deal. The company started by deciding on the most important factors for each deal—in their case, product mix and volume. They added financial factors that influenced the final price, such as payment terms and the competitive environment in the local market. An important aspect of the design was close collaboration with the sales teams in each region to tune the target prices to their customer base.
2. Build confidence by building experience
Translating confidence in the tool into confidence in negotiating prices is a critical next step. Sales rep confidence is a major determinant in capturing price and margin in any negotiated transaction. “There is nothing worse than a sales rep who offers a price to a customer and then has to duck because they fear having a chair thrown at them,” said an SVP of sales for a medical-products distributor.
Building confidence requires building capabilities through a sustained and dedicated program. Today’s leading companies engage in a “field-and-forum” approach that combines workshop sessions with real-world experience in the field, where salespeople can put what they've learned to the test. This is a proven technique for both overcoming resistance and reinforcing the lessons.
The problem is that even these kinds of programs can become overwhelming and cumbersome. And nobody wants to pull their salespeople away from their day jobs for too long to do training. We recommend a rapid “train the trainer” approach. The idea is to quickly provide a basic level of insight to trainers, who then train first-line managers, who in turn train the sales reps. They then practice what they’ve learned in the field, with periodic opportunities over time to refresh, reinforce, and evolve the learning. Involving the front-line manager is particularly important because sales rep performance is most affected, positively or negatively, by the manager.
Speeding to scale is a critical component for making this approach work. At a medical products and solution company, the team trained the top 100 people in two days. Those people then trained first-line managers for three days over three weeks. Those front-line managers then trained 1,200 people in a day and half. Another company made training the trainers the full-time job for 18 months for four high achievers, which communicated the importance of the effort and greatly increased the program’s credibility.
It is hard to overemphasize the point that salespeople should train each other in an organization. In this way, they own the process right from the start and have accountability for its success as well.
This kind of program also needs to pay special attention to helping build sales reps’ negotiating skills. We have found that there are three simple questions sales staff can ask themselves as they prepare for price negotiations: Has anything changed? Do we now have more information? Can I get more information? These lead to more detailed questions around whether the customer's behavior incurs more cost for the supplier, whether the customer is paying for the benefits of the product, and whether any external factors are in play.
What’s less simple is to then take these answers and actually negotiate with a customer. Salespeople are often insecure about translating hypothetical concepts into actual discussions. One-on-one coaching by the workshop facilitators during the fieldwork stage is essential, therefore, to help overcome this resistance. First-line managers and even more senior leadership should accompany reps in the field.
For the medical-products company mentioned above, this training approach (combined with upside incentives) resulted in reps who were more confident and captured higher prices in the first six months.
3. Rethink how you manage performance
Periodic reminders from the executive team and communicating success stories are important to build momentum. But developing a pricing approach that reflects the company’s goals and sustaining it over time require putting in place the right incentives and key performance indicators (KPIs).
KPIs should focus on goals that are meaningful to the company, such as those that track value created, consolidated profit margin, EBITDA, or growing faster than competitors, for example. In addition, those incentives have to be the same across all the commercial functions (e.g. product management, pricing team, sales force) so that people in the organization don’t work at cross purposes.
Meaningful incentives tied to relevant KPIs are important. But the best companies go further by tracking performance against those KPIs much more actively than their peers. While most companies already require sales managers to review account managers’ performance, those conversations often happen annually and are a rigid process primarily based on hindsight. It’s better to have regular monthly or even weekly one-on-one meetings in which sales managers quickly check progress against objectives (good visualizations can be particularly helpful here). But they also work with the rep to identify pricing opportunities or potentially profitable measured risks. These meetings can serve as problem-solving sessions that can focus on difficult accounts, identify and develop plans for future value-pricing opportunities, or work on building capabilities. This last point in particular is often overlooked by managers yet is highly motivating for sales reps.
The reality is, however, that for all the careful planning and frequent support, there will always be bumps along the way. The best performance-management programs both anticipate and plan for them. When they happen, companies designate a team to gather the facts quickly and determine the root cause of the problem.They set acceptable ranges for negative events such as customer churn, so that the organization doesn’t panic and abandon the new regimen when they occur. Instead, they create a forum for dialogue that’s supported and sponsored by senior people in the organization with the authority to resolve problems. This approach often includes an escalation plan for contacting leadership to resolve issues and make any necessary decisions.
This incident planning was invaluable for one medical-products distributor. Soon after it rolled out a new pricing program, one region reported that their prices were wildly off target. This was serious. But instead of abandoning the program, a team came together to figure out the source of the issue. They discovered that the region had a different competitive environment that hadn’t been understood before. They then adjusted the program and continued. By keeping their “eye on the prize,” they realized their objective of a 3–5 percent improvement in profit while at the same time identifying additional opportunities through better customer segmentation and offer design.
The best salespeople are entrepreneurs who know their customers and can spot opportunities. Harnessing that talent in the service of pricing can not only extend their capabilities but also deliver significant value to companies.