Is Your Staff Sabotaging Your Pricing Strategy?
Well-meaning sales staff often offer discounts to close a deal. How do you prevent this over-discounting from cutting into your profits?
Most business owners assume that their staff will implement their strategies like good soldiers. They forget that almost every army has suffered from “fragging” — grunts actually shooting their own generals in the back. Assuming and relying on good soldiership is, like all assumptions, dangerous.
Sales people often offer discounts before they should — or when they shouldn't at all. They don't get the price that a customer is willing to pay because, in their minds, low price is the only tool they have to close the sale. They so fear losing a sale because of price, they negotiate privately with themselves and come in low. Instead of really selling value, they take the approach requiring little thought or skill and sell on price. They will throw away your business’ profit easily, anytime there’s opportunity to do so. If you depend on your sales staff to safeguard your profits on their own, you’re doomed.
You might think that these are disgruntled employees. Occasionally that is true. However, in most cases it is not. They're not trying to hurt their employers. It is far more likely that they actually think they are helping and doing the right thing. In other words, not only do they not know that what they are doing is wrong, they think it is right. Often, the staff feels the prices you’re charging are too high, so discounting if they can or giving away free goods seems fair, just and appropriate to them.
This is such a common occurrence I have to wonder if anyone actually takes the time to teach their employees where their paychecks come from. Not everyone understands business. In fact, very few people do. Profit is necessary, not evil. Society cannot survive or progress without it. As the boss it is your responsibility to make sure your employees understand all that. They can’t get paid if there is no profit, and every cent they give away affects your profit and their ability to get paid.
Try this experiment: Ask each employee to write out a list of what they understand to be their 10 most important responsibilities on the job. You’ll discover very few, if any, of your staff members include “protecting and maximizing profits” or, for that matter, “preserving price integrity” or “implementing my boss’ price strategy” on that list. If there’s no understanding of any of this, there is bound to be both unintentional and intentional sabotage.
Your employees also need to understand how those you serve profit from buying your goods and services and, if your price strategy is focused around premium prices, how paying premium prices benefits the consumer. When someone is selling on price alone, they do so because they do not realize that the buyer is actually making a profit. They assume that the seller is the only one making a profit. This is absolutely false. If the buyer does not believe that they will profit, they will not purchase. To take that a step further, the buyer will not purchase again if they do not believe that they made a profit the first time and will again this time. That is a fact. For the consumer, of course, “profit” may not be financial. It may be superior service, product reliability, a better environment, even better staff to serve them. These things all cost money and must be reflected in price, but employees who have not thought about this and are aware of other businesses in your category selling at prices lower than yours may simply think your prices are too high.
How your staff thinks about price and profit will greatly influence their attitudes and behavior, and either discourage or encourage unintentional and intentional sabotage by sales people and other staff members of your price strategy. Given good education about this, any staff members still not on the same page and caught engaging in any sabotage — from undermining your authority and strategy with fellow staff members to failing to sell on value to theft, in form of unauthorized discounting or gifting —must go.
Break the negotiating addiction
There is a big difference between knowing what a problem is and stopping the behavior. Selling on price is no different. Selling on price is like an addiction. Knowing the cold, hard truth about profit may not be enough to prevent a relapse. You’re going to have to break the negotiating habit cold turkey. You are not going to be able to allow deviation from your set prices. You can have different prices that represent different levels of value; however there is absolutely no reason to strip away profit. In short, price strategy as well as sales strategy must be strictly enforced.
It is not enough to say that you are the only person who can approve a discount. If you do this, then what do you think will happen? You may have a brief reprieve from negotiating or unauthorized discounting, but will ultimately end up with a constant barrage of requests for discounts.
The only way to break the negotiating habit is to go cold turkey. This is the only way you can force your staff to sell on value. If they have the option to discount, they will, always.
This is going to be tough, if you’ve been “loose” about it, but you must be strong if you want to get your profitability back and want to protect it. This is not a time to be weak. It does not matter how good your pricing strategy is if your staff undermines what you are doing.
If you have any sales person who, after being educated about price and profit, and trained on value-based selling rather than selling on price, continues to negotiate away your profit or continues whining, complaining, blaming poor performance on your price strategy, badgering you about your strategy, or poisoning the attitudes of others on your team — they’ve got to go.
Related: Pricing a Product? Read This First
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