This article is the third and final part of Lee Nyari's Value-Based Pricing/Selling Guide. View Part 1 here, and Part 2 here.
Value Leaks in B2B Distribution
Customer Value Communication Gap
Key Question:
- Can most of your sales reps defend your prices, by quantifying the tangible dollar value of the benefits that different customers derive from doing business with you?
Actions: Implement/operationalize best sales practices (readily available, easy-to-reference libraries of value messages, talk tracks, customer value models, and negotiation tools), so all sales reps can confidently show customers how your services are adding tangible dollar value to their bottom lines/how your distribution business outperforms the competition in providing these services.
System Price-Value Misalignment Gap
Key Questions:
- Do system prices reflect how much value the distributor brings to the table in different segments of the market?
- Are profit dollars being left on the table in certain segments, because system price setting algorithms perpetuate historical pricing patterns (relying on “averages”), which may be driven by cost-driven pricing mentalities?
- Is the distributor wondering whether the business may be pricing itself out of other segments, where system prices may be set significantly above market willingness to pay levels?
Actions:
- Update price matrix definitions/segmentation schemes to include factors that drive customer value, especially if segmentation schemes are driven by simplistic customer size/product velocity considerations.
- Ensure that price setting algorithms account for how much pricing power the distributor has in specific segments. If algorithms are driven by segment averages (historical pricing patterns), update the algorithms to reflect customer value/ willingness to pay, and segment-specific elasticity.
Incentive/Execution Gap
Key Questions:
- Is discounting behavior being measured? Are sales reps held to credible benchmarks in how they exercise their discounting/pricing decisions?
- On paper, do sales reps have significant incentives to defend your prices? In practice, do they have a real appreciation for the tangible impact of how their pricing/ discounting decisions impact their incentive schemes/comp levels?
Actions:
- Implement reporting to gather market feedback, and also to enable the use of controls and incentives to affect sales rep behaviors.
- Provide reps with timely reports / hard data on any tangible dollar impact that their pricing/ discounting decisions may have on their comp.
- Bring price management into performance/coaching discussions!
Lee Nyari is Managing Partner of The Innovative Pricing Group, LLC, a consultancy that develops custom-designed, high-ROI scientific price optimization, value-based pricing, and strategic price management solutions for B2B distribution organizations. Lee is a seasoned consultant and B2B distribution pricing executive with over fifteen years of experience leading strategic pricing projects. His distribution industry pricing background is coupled with engagement leadership roles at top-tier strategy consulting firms. Lee is a Certified Pricing Professional, a Certified Public Accountant, and he holds a full-time MBA in Marketing Strategy from Kellogg School of Management.
