Instead, its focus shifts to meeting numbers to keep managers and investors happy. Take a look at the situation from the point of view of the sales force.
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When salespeople get their objectives for the year, they base their ability to deliver results on a number of assumptions of their own. Assumptions such as having the right product mix, delivering products on time, and getting a feel for what competitors do. This is where the wheels begin to fall off the wagon. Nothing ever happens as projected. Interest rates go up. Currency exchange becomes unfavorable. Product delivery is interrupted.
Competitors drop prices imagine that. Customers seem to get more price-sensitive. Suppose that the salespeople have been trained to negotiate well. Or perhaps they have a limit to what price they can drop to. In either case, the results are the same. Salespeople do the best they can to hold the line. Do they get rewarded for that?
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What happens is that at the end of the period—month, quarter, or year—the organization is short of the projections. Managers finally get off their collective behinds and go out to do what is necessary to close the gap. That means closing business with customers, whatever it takes. So it is with managers who need to make the numbers. They have a problem, and the only tool they have is price.
We call it the White Horse Syndrome in honor of television shows in which a complicated problem of long duration is resolved when a hero such as the Lone Ranger rides into town in a cloud of dust on a white horse to save the day. Then, as quickly as he arrives, the hero departs, saving everyone the unpleasant task of asking awkward questions such as How did we get into this mess?
Instead what they usually do is drop prices. And in so doing, they shoot themselves and their company in the foot. This is because customers learn to focus their negotiations on discounts. When we are in the market for a new car, most of us have learned to shop on the last day of the month, when salespeople, desperate to make their sales quotas for the month, are most willing to discount. We know of one manager who refused to play this no-win game until the division president got desperate. It was a business downturn, and his bonus was at risk if the company did not deliver the numbers.
He authorized an end-of-month discount to distributors who would buy forward. The results in the first month were great: The company made its numbers that month. The next month was different, of course. What did the executive do? This time he offered another discount for buyers who would buy before the end of the month. Did the company make its numbers? Remember, they were in a business downturn. The company needed to adjust its expectations, not use price to make unreasonable numbers.
The company stopped its lunacy in the third month and decided to face the music. In the last week of the third month, the distributors were clearly holding their orders, waiting for another price cut. When they heard that there were no more discounts, they started placing their orders as they had done in the past.
The executive missed his numbers and had to forfeit his bonus. How about the effect of the White Horse Syndrome on the sales force? The salespeople quickly learn that if the managers are going to focus on price, they should, too. As a consequence, they stop focusing on value. They worry less about being good negotiators.
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When a customer asks for a lower price, they either give it to them. This action might not be possible to undo. Are you sure you want to continue? Upload Sign In Join.
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Read on the Scribd mobile app Download the free Scribd mobile app to read anytime, anywhere. What would you do? Rule One: Replace the Discounting Habit with a Little Arrogance The best way to dislodge any deep-rooted habit is to replace it with another. Rule Four: Play Better Poker with Customers Learn to love your price buyers but play better poker with your poker players.
Rule Five: Price to Increase Profits The only effective thing that better pricing should accomplish for companies is to increase profits. Rule Eight: Build Your Selling Backbone The best pricing strategy will fail unless salespeople and managers have backbone in the selling process and the ability to defend it. Rule Nine: Take Simple Steps to Move from Cost-Plus to Value-Based Pricing There is nothing wrong with cost-plus pricing as long as it does a good job of leveraging the financial value you create for customers.
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What Is Your Pricing Purpose? What are you trying to accomplish when you set prices? Yes, but We Need to Meet the Numbers As business managers, we learn to set financial objectives and then drive the people in the business to meet those numbers. Cycles of Desperation What happens if the results start coming up short of projections? The White Horse Syndrome We call it the White Horse Syndrome in honor of television shows in which a complicated problem of long duration is resolved when a hero such as the Lone Ranger rides into town in a cloud of dust on a white horse to save the day.
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