In many B2B companies, there is a constant tension between the sales team and the pricing team. The pricing department wants sales reps to quote from a price list, while sales, often faced with highly competitive selling situations, would prefer to quote a price that has the best chance to win the business.
In most cases, price lists or matrix prices are set at a very high level, making them irrelevant to the particular circumstances faced on nearly every deal. The manual methods used to determine the price guidance going into the matrix are simply not granular enough to account for the complexity in the B2B selling environment.
Even though companies aren’t providing sales reps with adequate price guidance, they still attempt to evaluate sales rep performance with respect to these prices. This leads to an unfair comparison and evaluation of sales rep performance because market mix within territories is very diverse. The mix of customer types, competitors, products, costs and other margin drivers varies from one territory to another, suggesting the need to normalize performance measures.
With the availability of advanced price optimization solutions, companies can now deliver price guidance to reps that is market-aligned and specific to each selling circumstance. These optimized prices, or target prices, are already differentiated as a function of customer and product mix. Additionally, optimized price guidance enables a fair measure to evaluate sales rep price performance using a price realization metric, or the percent attainment as a ratio of the target price. The price realization metric demonstrates how sales reps are doing and the areas that need improvement. B2B companies can now compare reps and focus on elevating everyone’s performance, even though territory, customer and product mixes differ.
Gaining Consensus Around Price Guidance
The challenge many companies face is getting sales reps to follow price guidance. They have limited experience persuading salespeople to trust new guidance, given that previous prices lacked the accuracy and specificity necessary for each deal. Companies are successful gaining sales force adoption when they take a carrot, rather than stick, approach by demonstrating small, incremental wins and focusing on price realization goals, rather than compliance. Sales reps are more likely to rely on price guidance once they understand that it will keep them from either quoting too much or walking away from what would have been a fair deal.
Today’s pricing technology allows B2B companies to accurately evaluate sales reps and improve their pricing performance without stripping salespeople of authority and control. In this new paradigm, pricing decisions are still made in the field, but the technology-enabled pricing model arms salespeople with market-aligned, deal-specific price guidance. Ultimately, this results in better prices and higher margins, and more wins for sales reps.