The so called experts have proudly announced that the recession is officially over. Hallelujah, I feel better already! We may be emerging from the longest recession since 1929 but a lot of the folks I know aren’t buying it. Many of the companies they work for are still feeling the bite of lessened consumer demand and pricing pressures fueled by the tough times of the last couple of years.
This blog is about one of the particularly nasty side effects of the recent recession (over or not? You decide) and what can be done about it. The side effects I am referring to are pricing concessions that were offered to customers during the tough times.
We all know that price is always important and can become even more so during tough economic times. The main problem with lowering prices during a recession is that they can be hard to rebuild to pre-recession levels for long after the recession has ended. Many of the sales professionals and sales managers I speak with are convinced that “temporary” price reductions are sometimes essential to hold onto business but is it really a good idea?
One of problems companies face emerging from a recession is that they have had to make some hard cost reduction decisions to maintain reasonable operating margins while weathering tough a tough economy. In many cases that included job losses associated with the reduction of overhead. Even though the stock market is signaling better days ahead many companies are not adding jobs as the business starts to recover. Without doubt a portion of that problem is associated with the reduced operating margins forced by “temporary” price reductions.
One of the most critical skills for sales professionals in the “new” economy is going to be financial acumen. Many sales people are conceding prices without understanding the true impact it has on both their business and the customer’s as well. If the rep’s company is operating with a gross trading margin of 35% how many understand that the impact of a 5% price reduction on their corporate bottom line is probably in the neighborhood of 33%? Conversely, if they are selling supplies to company where the supplies only represent a 7% line item on the customer’s P & L, the impact of that same 5% price reduction to the customer’s bottom line is less than 4/10 of 1%! If you can’t sell through that you are probably in the wrong job.
The best way I know of to insure a healthy economy is to insure healthy businesses and one of the best ways to insure healthy businesses is to maintain margins. Companies need to take a hard look at the financial literacy of their sales force and insure they are as competent at understanding a profit and loss statement as they are at overcoming objections. When it comes to price, one skill will definitely enhance the other.
Chuck Terry is the Executive Vice President and CSO of Carew International and is regular contributor to Carew’s blog – Executive Insights
Carew International is a leader in sales training and leadership development; specializing in comprehensive, proven training programs for sales, sales management and customer service excellence. For over 30 years, Carew has earned its reputation of delivering increased productivity and profitability to our valued clients world wide.
