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Letting Salespeople Set the Price
by Rick Wills, Manager, Education & Development, GROWMARK, Inc.
Most managers will tell you that letting salespeople set price is much like having the fox guard the chicken house. What you end up with is chaos, which is why few companies consider getting their salespeople involved in the pricing loop.
In one sense, their concerns are justified, since a number of studies have shown that companies who give salespeople the freedom to adjust prices usually end up with lower profit margins than those who have sales people follow a stricter, traditional policy of having management handle things.
Seen from the other side though, salespeople complain that since they’re hamstrung being tied to rigid price structures handed down from the front office. They argue that since it’s their job to make sales, they should be given the option to offer a price that’s competitive.
The dilemma is practically as old as the selling profession itself. GROWMARK Inc., a Bloomington, IL based farm cooperative has developed several simulations and training programs that provide its salespeople with a better understanding of the intricacies of setting and maintaining prices.
GROWMARK found that training on how to handle price objections became even more effective when salespeople understood and accepted how the prices were established to begin with. In many cases handling price was less a skill problem than an attitudinal issue. To that point a computer-based marketing competition and training program was established that focused on price from two distinct vantage points: that of the customer and that of management itself. According to Rick Wills, Director of Education & Development for GROWMARK, Inc. “By letting people see what is involved in establishing prices we found that they have a greater understanding and acceptance of the numbers they are given to work with.”
The simulation called “Selling Against Price” offers salespeople an opportunity to operate their own “companies” and more specifically to set their own prices.
The simulation, which will be shared at the upcoming SMT Meeting in Boca Raton, FL in November, involves up to six teams of six salespeople. Each team is an individual company. Each company is provided with all the information they need to establish prices, sales coverage, incentives, and marketing support for three different product lines. During the course of the program decisions are made for four quarters. After each decision is run through the computer each team receives back information on their total units sold and market share. Each team then utilizes their own information to create a quarterly income statement for the quarter.
The time between the completion of the decision sheets for each quarter and the return of the computer generated sales units and market share results is spent in discussions and workshops on topics such as: the importance of price; breakeven analysis; customers view of price; preventing price objections, and; handling price objections.
Upon completion of the final decision and income statement instructors produce graphs showing the pricing decisions for each team, as well as their profitability and market shares. In reviewing the charts teams share their thoughts on why they did what they did and what changes they would make-if any- in retrospect.
The simulation and training program have been successful in helping salespeople understand the complexities of pricing, but it hasn’t eliminated price objections or the skills need to handle those objections.
[PRINTER FRIENDLY VERSION]
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