Sales organizations are always looking to improve deal management capabilities and help reps negotiate from a strong, informed position. Yet reps often have an initial resistance to using deal management tools, especially when they involve price recommendations.
People tend to resist change, especially when they misunderstand the nature of the change or the business goals associated with it. Salespeople are no different.
Combining configure, price, quote (CPQ) with pricing guidance gives reps powerful capabilities that help them become more effective and successful. But to some, it sounds like they’re being asked to learn two new systems.
In order to overcome their resistance, you need to ensure that the reps incorporate pricing guidance in the right way and educate the sales force about pricing in general.
That education often starts with dispelling these nine commonly held myths about pricing guidance:
Myth No. 1: Price elasticity applies to negotiated B2B sales. Negotiated B2B sales are generally binary, in that you either win a deal or you don’t. You can’t win more or less of the deal by changing your price.
In B2B sales, the relationships between pricing, volume and profit are typically a step function or a flat line — never a smooth elasticity curve. That’s why it’s so important to have a system for delivering a price that wins.
Myth No. 2: It’s a competitive market and we are at the mercy of the market and competitors. This just isn’t true. Pricing excellence is about understanding the value you’re providing to customers; it’s not about what the competition is charging.
Most companies don’t even know what the competition is charging, and clearly, they don’t have insight into competitors’ pricing agreements. Since a customer is never going to complain about pricing being too low, you always need to negotiate with them, based on the value you’re providing.
Myth No. 3: Cost-plus accounting and pricing models are fine. When a lot of companies set the price for a new product, they start with what it cost them to produce it and then raise that amount by a certain percentage. This approach doesn’t just produce mediocre results — it creates big problems.
There are two main reasons why you shouldn’t use cost-plus to set your pricing:
1) Your customers don’t care about your costs. It is not part of the value you bring to them.
2) If your procurement or supply chain team works really hard to get your costs down, you may not want to pass that savings right on to your customer, when your prices may have been right in the market previously.
Myth No. 4: Killer spreadsheets are all that’s necessary for pricing excellence. Spreadsheets are static; they aren’t capable of capturing the dynamic price, volume and profit relationships between large numbers of products.
For example, imagine you have 10,000 products in your catalog, and you’re selling those products to 1,000 customers across six different regions. That’s 60 million pricing items. You simply can’t manage that kind of complex data with a spreadsheet.
That’s enough to get started. In part 2 of this article later this week, we look at five more myths about pricing guidance, and how to help your sales team overcome resistance to these deal management tools that could unlock new sales productivity and profitability.
If you are attending the Professional Pricing Society’s Spring Conference this week and want to learn more about Deal Management best practices, be sure to check out Shannon Tatz from PROS present on “Overcoming the Plight of the Deal Desk Manager,” Friday at 3:30 pm.