Confusopoly in the electrical industry? YES!

Yep this describes out company and our industry. Funny I hadn’t thought of this issue the way you describe it.

In credible how it all comes into focus…this is our management issue.

Amazingly salespeople really don’t have the handle on price they claim to have. Here is an experiment shared with me by David Bauders of Strategic Pricing Associates.

Apparently a distributor put the pricing expertise of their sales force to the test.

Eighty of this organization’s sales people were asked to “guess” the price of the top 25 sellers. These were products they came in contact with literally every day. The sales person’s answer would be judged correct if within 20% of the actual price. For instance, if the price was $100 – anything between $80 and $120 would be scored as correct. With all of these things in mind, you would expect near perfect results – right. Enter the strange world of the human mind.

Here are the results: The sales people were disconnected from pricing reality – even with the 20% grace factor. The top score wasn’t 100% or even a 96 or 92%. It was 72% (18 out of 25 correct). Only four other people got more than 13 out of 25 correct. And the “coupe de gras” – the average score was only 29%!

I wonder what would happen if electrical distributors “tested” their own people?

We, as a manufacturer, truly participate in this type of behavior, which not only confuses the distributor but alienates them to the point where they consider low end, into stock competitors. I wish we could as an industry stop this and save paperwork for everyone!

Unfortunately our industry has about 20,000 or so purchasing influences, who also are pricing decision makers. We spend far too much time negotiating what often amounts to routine stock purchases. Not sure we could ever run without SPA’s, but you have to wonder how much better our industry would be if all the time wasted by distributors and suppliers negotiating and implementing these SPA’s was put to better use, like managing our sales force’s direction and overall business strategy.

Everyone believes they know their pricing and each company has its own pricing strategy. Thanks 🙂

BELIEVING you know your “cost” and knowing what your cast are, especially when you build a sell price up from a cost are two different things.The line between what one believes and what is real is often blurred in out case.
There is a lot of money being left on the table by distributors who work from cost up……I know first hand. We switched all of our slow moving items to a benchmark and then kept the sales people from discounting. It has worked well for us.We plan to adopt more pricing this way:)
From a Southwestern distributor.

What I have found interesting being the point person for pricing for a distributor is that our Manufactures one by one are getting their pricing inline with what the market will bear.
Most distributors in our area are still in the days when pricing was in the hands of the salespeople and the pricing strategy continues to be profit by confusion. As distributors we do not seek pricing consistency as the norm is you can call 3 different branches within one distributor and get 3 different prices. Some of this is software limitations while the balance is the lack of Pricing Structure, Control, a General Company Strategy, and Plan to move towards a higher level.
I totally believe the individual that said you could not get your salespeople to give you the price for their top customer on the 20 items. I also agree that our industry believes in selling from cost not from a price that your customer is willing to pay. Most of the time we spend way too much time selling to ourselves and the customer.

All great comments.
Over the years I have seen a number of clients that have had the finger nails chewed off by their customers, when they attempted to raise prices. Some retreated, and some were prepared to justify their services and prices.
For those who retreated, customer services were pushed to the back ground (devalued) and many got into situations where they became dependent on ‘sales’ telling the company what the market would bear. Maybe not by line item (Jerry picked), but the overall order suffered. And thus an erosion of profit.For them it was just easier to retreat.
This type of situation is very changeable, if the company is willing to take the necessary steps to change their current processes and set up some rules and accountability.
So it begs the question: How do you currently view the overall selling price development and how do increase the value of the services you offer if you are a distributor?
It’s an interesting set of questions if you’d like to discuss.
Allen Ray
allen@allenray.com

I remember a distributor salesman who used to say to his customers….”We offer price, availability, and service. Pick two!” Of course he was sort of joking, but it’s very hard to offer all three elements with the erosion of margins in this industry.