The List Price Question

The List Price Question - You might want to charge more than list price.

What is List Price?
Many salespeople believe list price is that artificially high number which is used as a marker for future discounts. In their minds, it is an unnatural sin to sell anything to anybody for “list.”

Part of this attitude and philosophy comes from daily life. For instance, “Nobody pays sticker price for their new Ford and no real customer pays list for their supplies in our industry.” can be heard echoing through sales bullpens.

But this story doesn’t really hold up well. For example, car dealerships have regularly charged more than sticker for hard to find or a limited production vehicles. Toyota dealers still stick to the manufacturer’s sticker price on most of their line-up.

But we’re not in the car business. Our question becomes should distributors selling things like plumbing, electrical, HVAC and industrial items ever sell at list price or maybe even beyond?

Distribution’s foremost expert on pricing matters, David Bauders of Strategic Pricing Associates, regularly encourages clients to ignore list prices on some products. Salespeople (who are commonly paid on gross margin) squirm when presented with this option. They believe customers will take the list-plus pricing as a personal affront. I have heard the arguments on both sides of the equation to ad nauseam and I find myself coming down on the side of Mr. Bauders.

OK, but… when should I charge more than list you ask? Let me give you three Jeff Foxworthy-like answers:

• If a product line is not one of your major supply partners and instead provided just as a customer convenience. You might consider charging more than list.
  
• If purchases are very small and the gross margin generated is too small to pay for your transaction costs. You might want to charge more than list.
  
• If the customer is leaning on you to provide a million value-adds that are hard for your competition to replicate. You might want to charge more than list.
  

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Come on, it's cheaper than list price!  

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Special Delivery

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While there is no catch for this, it would be nice if we could get reviews, good and bad.  You know...in your spare time!

Send $20 payable to Frank Hurtte along with your address to:

River Heights Consulting
Attn: Manifesto
226 Hillcrest Avenue
Davenport, IA 52803
 We're happy to include a receipt for your records.  Let us know if there is a PO number.
This is only good through Labor Day, so put it in the mail today!

Thanks for all the questions, challenges, anecdotes, and support!

The Death of a Distributor - The Wrong Kind of Culture

A typical Iowa summer storm-2013

Recently, I had an opportunity to visit with some old friends. We’ve known each other for a very long time and I felt as though I really knew their company. Back when I knew them, they were innovative, entrepreneurial and aggressively nimble in their approach to opportunities.

Lately, the supplier grapevine is rife with reports of their slow-down. Instead of the glowing stories of the past, comments like “can’t make a decision to save their soul” and “everything is a committee” flowed through the market. Even competitors had chimed in with tales of grabbing business opportunities away from their company. None of the stories seemed right or reasonable, based on my previous experiences. But things change…

My conversations with these old friends were telling. As we talked about business and all that was going on in their lives, I recognized something. Somewhere over time, this company had changed from an organization that learned from mistakes to a place where mistakes were to be avoided at all costs. The message was out; mistakes will be remembered and punished.

In the past, when an employee recognized a window of opportunity, they felt comfortable pulling out all the stops to capture the business. Mangers who noticed a new or innovative approach to solving a problem thought about it for a moment then put the full force of their authority behind fast and immediate action. Decisions were made, actions came immediately and the results often caught competitors napping. Were mistakes made? Absolutely, mistakes happen. Were the mistakes sometimes costly? The answer again is yes, but looking back costly mistakes occurred on just a few very rare occasions. On the other hand, the number of positive outcomes was huge.

Somehow the culture of the company had shifted.

Davenport, IA during the
Great Mississippi Flood of 1993

When presented with opportunities, the company’s managers create committees to discuss, rehash, and dissect the course of action. The committees, knowing full well mistakes are punished, avoid making bold moves. Very often, by the time a decision is made, it is diluted to the point of not providing a substantial competitive difference. In many instances, decisions are made after the opportunity has expired.

The net result has been slow growth and employee stagnation. Entrepreneurially spirited employees have moved on. The whole place moves forward like a bunch of bureaucrats positioning for the next election.

Deluded to the point of dumbness, this previously high flying distributor’s leadership team congratulates themselves on employee involvement. Committees, task forces, ad-hoc groups abound. Lots of talk, massive study and lots of smoke with very little fire replace action.

I went away from my meeting feeling spent and tired. What a shame to see something like this happen. I generally stay away from the whole “culture thing” but after seeing the negative impact, I had to vent. Here are five valuable thoughts framed by the words of great leaders from business, politics and big-time sports:

“A good plan violently executed today is better than a perfect plan executed sometime next week.” General George Patton
In distribution, timing can be everything. If involving others slows down your decision process, you lose some of the advantage. Innovative new product lines are scooped up by competitive distributors. Customers find new alternatives elsewhere. Highly qualified prospective employees get a job down the street. Carefully review your ability to pull the trigger quickly.

Quad Cities Ice Storm, Davenport, IA-2013

“If you see a snake just kill it… don’t appoint a committee on snakes…” Ross Perot
Decide early on who is qualified to make decisions. Committees are a useful tool, but somebody should hold the decision making power inside the committee. Beware of managers who take everything to committee and use the committee as their excuse for underperforming.

“If you're not making mistakes, then you're not doing anything. I'm positive that a doer makes mistakes.” John Wooden
Mistakes are valuable learning tools. I would never recommend ignoring mistakes. Quite the contrary, I recommend analyzing mistakes. By better understanding the circumstances, why the mistake happened and how your team could have responded differently, a distributor can train their people in a real world setting. It’s only when the similar mistakes are repeated over time that disciplinary actions should be considered.

“The more people you make responsible for something, the less chance there is for it to get done.” Jason Fried – 37Signals
Involve a committee if you must. But activities are completed when one person is responsible for making things happen. Group decisions along with shared responsibility set the wheels a spinning.

“The buck stops here…” President Harry Truman
If you occupy a leadership position in a distributorship, albeit Owner, President, VP, Sales Manage or something else, you are responsible for the decisions of the team. When things go wrong, absorb the heat. That’s your job.

A parting thought….
I find the quotations of those great leaders of the past inspiring. Across from my desk hangs a portrait of President Andrew Jackson. His men called him “Old Hickory” because he was tough and aggressive. He made some tough decisions and at least a couple of time, he made poor decisions. He played an instrumental role in pushing our young nation to greatness.

He also said, “I was born for the storm. The calm does not suit me.”

I say create your own storm.

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