In one of our webinars for Journal subscribers called Diagnosing Pricing Problems, we talked about how to get beyond the knee-jerk conclusions to identify and address the true root causes behind apparent pricing problems. One of the many diagnostic principles discussed in the session was about avoiding the temptation to identify people as root causes.
Believe me; I understand just how hard it is to stick to this principle. Sometimes it’s really tempting…and even a somewhat satisfying…to stand on your chair and level an accusatory finger at some person or group whose behavior has had dire consequences.
But the reality is that people operate within systems—management systems, incentive systems, operational systems, political systems, development systems, etc. And people’s behaviors are heavily influenced, if not entirely governed, by those systems.
Take salespeople for example…
Looking solely at behaviors and outcomes, it might be very easy to conclude that your salespeople stink at pricing and discounting. But is it really them? Is it really their doing? Do you really think they’re starting every day with a desire to do a crappy job? Or setting out to hurt the company?
Or could it be that…like all of us…your salespeople are just doing the best they can within the systems that govern their work? Could their shoddy pricing and discounting behaviors be the product of shoddy underlying systems?
In the webinar, we highlighted a number of systemic root causes behind apparent pricing problems in the field. Here are just three of many:
- Revenue-Based Comp Plans—A revenue-based sales compensation plan is a very clear systemic signal that winning the business at all costs is what’s most important to the company. And under this type of system, a salesperson is forced to weigh the risks of losing something that affects their paycheck (i.e. losing the deal) against the benefits of securing something that doesn’t affect their paycheck (i.e. additional margin dollars or points).
- No Negotiation Skills Training—When a company’s hiring systems aren’t able ensure that employees have the requisite skills to do the job effectively, the company’s training systems are supposed to fill those gaps. That said, very few companies are providing any sort of negotiation training to their salespeople. We’re expecting them to do a job they really haven’t been trained to do, yet we’re shocked and outraged when they end up doing that job poorly.
- Lack of Prospect Demand—Imagine that you had to pay your bills with the proceeds from a weekend garage sale. Now imagine that only two people showed up. How would you behave? Think you might be a little desperate to get those few people to buy something? Think you’d be willing to haggle and negotiate a lot more than if 100 people showed up? When a company’s demand generation systems or marketing processes are lacking and ineffective, salespeople will often resort to “desperation discounts” to make the most of what little they have to work with.
Now…in any group of people there are going to be some who are incompetent, lazy, and/or indifferent. But the good news for the human race is that they are somewhat rare, and most people are indeed motivated to do a good job.
So when that “good job” isn’t happening and you want to understand why, take a hard look at the underlying systems people are expected to work within. In many cases, that’s where you’ll find the real culprit.
Exposing the Secrets of Price Negotiation
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Revamping Sales Comp to Improve Pricing
In this on-demand webinar, you'll learn about the pros and cons of various approaches for infusing pricing performance into your sales compensation plan to reduce unnecessary discounting and boost profitability.
Five Steps Toward Understanding Salespeople
A big part of pricing is influencing and motivating salespeople to price and discount more effectively. This guide helps you understand salespeople and learn what makes them tick.