Pricing power—or the ability to raise your rates without losing a customer—is hard to achieve in a commoditized business like transportation.
But a report from Simon-Kucher & Partners gives reason to hope. The firm’s Global Pricing Study 2012, a survey of more than 2,700 executives and managers, noted that profits rise sharply when C-level executives take an active role in pricing.
When the bigwigs commit to owning price from cradle to grave, the result is a whopping 28% increase in EBIDTA. Companies with a dedicated pricing organization are 23% more likely to increase their profit margins as a result of a price increase.
With percentages like that you’d think that every transportation CEO would take control of the pricing power goldmine. Apparently not!
In late November, while attending an industry convention, I conducted one of my patented “HAB Surveys” (Hanging Around the Bar). Over 80% of the leaders I informally chatted with have very little to do with pricing strategy at their company. Almost everyone dabbled in it but very few actually owned the process. The majority relied on middle managers and sales reps to do the dirty work. Not surprisingly, once the truth serum kicked in, not one person was confident about his ability to raise customers’ prices.
With rates that are consistently below expectations in this industry, here’s how I would take control of the pricing power goldmine:
1. Own the Goldmine
For smaller companies, “owning” pricing can be as mundane as the president approving every rate request before it goes out the door. For larger companies, it could mean making pricing topic No. 1 at every C-level and staff meeting. Regardless of your company’s size, the mere fact that the boss has made pricing a personal responsibility will mean increased attention by the entire staff. When it’s important to the boss, it magically becomes important to every one else!
2. Create Structure
The next step is to build a structure to deal with the complex nature of setting prices. Pricing is far from an exact science. You’re combining internal and external facts with a splash of market intelligence and a dash of industry instincts.
At a minimum, you should communicate your goals as a business, define where the buck stops, and clearly articulate the roles of every pencil that touches the numbers. Establish who within the organization will do the day-to-day pricing work to make sure your strategies get implemented. Structure is the only way to add rationale and accountability to an irrational process.
3. Change the Messenger
The most important component of any pricing structure is its delivery to customers. Let’s call a spade a spade: shame on us for allowing sales reps to be the messenger. Pricing is too important to be left in the hands of weak-kneed peddlers who are remunerated on everything but profitability.
Ownership of pricing means getting out of the corner office and hitting the streets. People love dealing with the boss. It makes every customer feel important while sending a strong message that you’re serious about your agenda.
4. No Knee-Jerking
While you’re taking ownership of pricing, you still have customers out there whose rates haven’t been increased or even looked at in years. To them, your careful, measured approach is going to feel like a knee-jerk reaction.
Give it time. For example, in my previous life, our C-suite took six months to plan and implement a $17 border surcharge fee. Accessorial charges are a critical leakage point in pricing—more often than not, these are waived by a sales rep taking the path of least resistance—and we wanted to make sure customers understood why we were applying this charge. Yes, I had to make a lot of sales calls. But, with top-level support, the fee added $700,000 of sustainable gold to our bottom line. It’s part of your job when you own the gold mine!
Saying “me too” to Sinking Ship Transport’s rate is a common strategy for pricing new business. We’ve all heard the song and dance: “We have to match these rates to get the deal.”
It makes zero sense. Do you really think the customer is switching suppliers because he has nothing better to do? Instead of getting agitated every time they’re presented with “me too” pricing, your sales reps must have the discipline to uncover the real reason for change.
Hitting the road with your sales reps may not have been in your plans this holiday season. However, it’s the best way to show who’s in charge while making sure there is some gold under the company Christmas tree.
<bio>Mike McCarron was one of the founding “M”s in MSM Transportation before the company was purchased by the Wheels Group. Based in Toronto, he currently works for Wheels in mergers and acquisitions and can be reached at email@example.com. Follow Mike on Twitter @AceMcC.
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