Article: Are You a Discount Shop? | Strategic Pricing Associates (SPA)

Read our article about the keys to not being pressured into using discounting for all customers to appease your price-sensitive ones.

Excerpts of the article authored by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales follow.

“Before we instituted a pricing process we were just an off-price discount shop.”

Many years ago someone made the off-hand comment, “Before we instituted a pricing process we were just an off-price discount shop.” This thought has rattled around in my mind for a good many years. Truth is; I find myself repeating it as I talk about the power of the Strategic Pricing Associates (SPA) pricing program. But recently, I have been wondering just exactly what the world must look like through the eyes of an honest-to-goodness price chopping discounter.

Conjure up the picture of a discount shop – a vivid recollection in my mind’s eye is a reoccurring Radio jingle for a clothing outlet:

“No frills, no fixtures, and no salespeople – great deals. Our loss is your gain!”

Bargain hunters love this sort of thing. The smart ones don’t depend on these places – instead buying is a bit of a sport. They understand all sales are final, there’s no guarantee and it’s buyer beware to the nth degree! The ill-informed and unaware soon fall victim to unexpected quality problems and a seller unwilling to provide satisfaction. But, they learn quickly – you can’t rely on the places for your real needs.

“…you have salespeople who understand your product offering”

If you are a wholesale distributor this model really doesn’t work. For one thing, you have salespeople who understand your product offering. They have cars, phones, computer systems and a myriad of support staff backing up their efforts. According to one of the latest distributor association profit reports – our people alone represent over 60% of our costs. You can’t have qualified people and the lowest price on the planet.

Unlike the off-price discount shop, wholesale distributors must support all of their customer needs. Here we’re talking about not just the fastest movers, or a collection of close-out merchandise. Instead we maintain spare parts and even some slower moving items kept just-in-case our important customers need something fast. Distributors call it service stock – and customers have come to rely on it.

“Hold on, I’m not really an off price discount shop.”

Now here’s where we need to take a hard introspective look. By now most would say, “Hold on, I’m not really an off price discount shop.” Discount shops would never hire the caliber of people we employee. Instead, they would look for folks willing to work for minimum wage. Instead of hiring a top notch recruiter to find a “product expert”, they would attend the same job fairs as fast food joints and temp-labor firms.

A discounter would never use a nice building with a training facility designed to handle customers interested in learning. A discounter would minimize whatever stock they had – unless they could get a hot deal on a truck load of grey-market stuff. And, no discounter in their right mind would ever offer any type return policy. Making money as a discounter is all about minimizing costs, selling lower cost product and avoiding expensive service issues.

“Death comes slowly for organizations that support a knowledge-based distribution infrastructure and an off-price discounter selling culture.”

Death comes slowly for organizations that support a knowledge-based distribution infrastructure and an off-price discounter selling culture. Unfortunately no one consciously launches into this situation. Instead, it comes over time – encouraged by human behavior and purchasing department negotiation strategy.

How does this happen? Well, first your sales people establish themselves with customers. Remember, your sellers really do want to provide the right kind of service to their customers. And the customers recognize this quality. They build relationships, maybe make a few small sales – then it happens.

“How does a company manage to avoid this trap?”

… Mostly via a pricing process… Without a process, every customer transaction becomes the responsibility of the salesperson, customer service or counter sales rep interacting with the customer. Every pricing situation is an exception. If they are conscientious folks – and most are – they want to close the order. They slowly move customer margin levels downward until no one complains. If they hear squawking (which is often a negotiation tactic) they adjust prices down another notch – it’s that simple. And can be avoided if the distributor has a process.

The trouble with process in today’s distributor environment – everybody thinks they have one but very few really do.

Click here to read the complete article.