(Apologies for my blog hiatus. I left off on 7/6/21 with the third – of an intended 6 – blogs on rethinking management beliefs for the better. This is fourth in the series. For the first three, check blogs 250 to 252)
INITIAL, SELL-HIGH THOUGHTS
Here’s a fantasy: raise all prices by 1% and not upset or lose any customer business. Then: with zero increase in service-activity costs, the incremental margin (less rep commissions) flows to the bottom line. This is the easiest, fastest and biggest profit-improving tactic for distributors: in theory only!
Sell High (for no increase in service value or without patented, exclusive products) is – a you-win, customers-lose, zero-sum – proposition. It has never succeeded in competitive, free-market history. If perchance you have underpriced, best service-value, then do assert your untapped “pricing-power”.
And, do be pricing efficient. Do you have non-shopped (low-dollar) SKUs for which prices could be tweaked higher – unnoticed? Ignore historical “list pricing” and charge what the market will bear. (SPARXiQ.com can help!).
Don’t make fallacious Gross-Margin-Percentage (GM%) assumptions. Both “Sell High” and “Buy Low” simulations expand general GM%. So, it’s natural to assume that all customers and SKUs that have high, average GM%s are profitable? They aren’t! Average, GM-dollars/order and SKU-pick (less) related activity-cost dollars (equals) profits or losses.
Financial statements are blind to the average GM$s/order for each customer. A 50% GM on a $2 pick or order will be a cost-to-serve loser. A 10% GM on a $100K drop-ship will be very net-profitable. (Get best customer profitability analytics from WaypointAnalytics.net to fix losing customers and SKUs while growing the winners.)
NEXT-LEVEL THOUGHTS
How can your reps get: “last-look + two extra points”? Easy: have guaranteed, best, service-value and reps who improve customers’ profits. But, if you are amongst the 95% of distributors who don’t have either, then be happy with last-look, price-taking and herd profitability.
To be top 5%? Target one customer niche at a time. Define, measure and achieve distinctive service metrics for the niche. Teach reps to teach customers how your service lowers their “total procurement cost” (TPC) and improves at-hand, uptime productivity. Then, win! (Google: “total procurement cost” + merrifield)
Customers will begrudge you a higher price, but still want the low price. Oblige them with one of two, selling, judo moves. The easy move is: “quid pro quo”. You match the price in exchange for a customer concession: an increase in average GM$/invoice and/or getting more spend.
The complex move – for smart buyers – is to suggest that they partner your best service with a – co-created, integrated, automated replenishment process – for a win-win. Your cost-to-serve as a percent of sales drops to afford lower prices and their TPC drops too. For more see my webinar #9 at merrifieldact2.com under the “ecommerce 2023” tab.
Conclusions
Don’t “sell high”, sell better in multiple ways. And, do check out the enabling, customer-profitability analytics from WaypointAnalytics.net.