By Kevin McCabe, Director of Pricing Strategy, and Kirk Jackisch, President at Pricing Solutions

In times of crisis, the health and safety of your community (including you, your family, your colleagues, and your clients) remains a top priority.  Once you’re sure your community is well cared for, you can confidently shift your attention to helping your organization protect revenues and margins. Pricers can do this by assisting the Team with a strategy that protects cash flow and revenue. The following steps are immediate actions that you can take to protect your company’s cash flow, prevent pricing leakages and ensure its long-term success.

Make a Short-Term Plan for Long-Term Results

During turbulent times sales forces lose confidence and are tempted to cut prices to maintain volume. Beware of rash pricing decisions! Competitive pricing confusion often leads to suboptimal pricing. Short-term changes in pricing policies can become long-term burdens as it takes companies years to rebuild their initial level of profitability. While it is necessary to act quickly, careful consideration to pricing must be taken and is more important than ever. The following steps are immediate actions that you can take to protect your company’s cash flow and ensure its long-term success.

  1. Identify Pricing Leakages

Evaluate your short-term agreements with clients and identify pricing leakages.  Identifying and fixing these leaks should always be a pricing priority, but now more than ever it’s critical to stop leakages immediately to protect revenues and margins. Start by examining your existing short-term agreements with clients and identify pricing leakages.

Common leaks include:

  • Customer discounts
  • Fulfillment and order management
  • Freight and shipping
  • Payment terms
  • Returns and samples
  • Warranties, guarantees, and product inspections
  • Pre-order and after-sales support
  • Rush orders.

Depending on the leak, possible solutions could include:

  • Altering shipping terms and/or shipping costs
  • Enforcing minimum order quantities
  • Enforcing solutions for margin leaks (pricing rules, policies, and discounts) at the invoice or item level instead of by order
  • Charging more for rush orders.

  1. Prepare a Gives and Get Strategy for Your Sales Team

Prepare a Give and Get strategy so that your sales team can appropriately respond to requests for discounts and extended payment terms on existing and new transactions. It’s important to look for win-wins, which we refer to as gives and gets. The trade-off is that if a client gets something, they give something, and the negotiation should result in a win-win for both the client and the company. Here’s an example. Extended payment term requests are spiking right now; in order to “give” this benefit, counter and “get” the client to agree to a reduction in discounts or to a higher price.

Below, you can see which of these groupings are most prevalent across different industries:

Here are some examples of Give and Get strategies that can address pricing leakages:

  • Lead time – Customers who give more lead time get a reduced price.
  • Order Precision – Customers who order a large quantity of products with zero tolerance pay more, whereas clients who accept a +/- tolerance pay less.Read our white paper to find out why!
  • Full truck load – Customers who procure a full truck load receive a lower price because the company’s transportation costs are reduced.
  • Payment terms – Customers who pay upfront receive a discount.
  • Longer-Term Agreements – For larger customers, and if appropriate, sign a longer agreement in exchange for lower prices or payment terms with drop-dead dates (e.g. For 2020, or up to 2021).

Think about how these strategies could be applied to your business.  You’ll notice that in all these examples, the sales team has options at their disposal to lower the price. Each option addresses a potential pricing leakage while offering a win-win for both the customer and the company.

This strategy will pay off in the short term by preserving cash while driving significant profitability increases over time. Be sure to present your Give and Get strategy and discuss enabling top line and bottom line pricing objectives with the key players at your company who would need to sign off on these pricing policies.

  1. Implement Our Pricing Checklist in a Time of Crisis

In addition to addressing pricing leakages and your Give and Get strategy, consider following these steps now to protect your margins in a time of crisis:

✓ Reduce your maximum discount rate to narrow the number of discounts you’re offering.
✓ Reduce the number of exceptions to your pricing policies.
✓ Build a team (Scrum) of the key people needed to approve exceptions to pricing policies.
✓ Segment customers that drive profitability by 80’s and 20’s revenue amount to identify and overserve your largest and most valuable customers.
✓ Determine ahead of time how your company will respond to these valuable customers if they call and ask for lower prices.
✓ Communicate your pricing decisions to internal teams. Be sure to offer your sales teams guidance so they’re confident and able to use a challenger sales approach.

It’s important that your sales team:

a) Has a coordinated response
b) Takes customer prioritization into consideration
c) Is given response strategies for objections and understands your SMART discounting criteria.

✓ Communicate your pricing decisions to your customers using the challenger sales approach including added value, your Give and Get strategy and drop dates.
✓ Track transaction and purchase data during this period, focusing on finding higher value and lower value products.

Events are changing quickly, so consider sending your executive team a short weekly email with any pricing updates (e.g. new pricing leakages that have been identified, variances in discount behavior, a list of exceptions, net margin improvement tactics, etc.) Following these practices will allow your organization to forecast net margin goals for the next 18 months and be better prepared to report variability drivers.

Strategic Thinking for Long-Term Success

In a time of crisis, it’s essential to act quickly and carefully with regards to pricing. The decisions you make now can hurt or protect your organization’s revenues in the short-term, and when done strategically, can set the stage for long-term results. 

Struggling with where to begin?