Pricing

Profit Switch. What is the one thing you could do?

By Ben Blaney
March 22, 2013

discount-from-priceIn my talk at the Vendavo Profit Summit last week, I mentioned a great book at how to effect change: Switch, by Chip and Dan Heath. The idea of the book is that we all want to do new things, but that it’s hard for us to get them done. A strategy for dealing with this is to “eat the elephant” a piece at a time. So instead of grand, abstract plans, we choose a small incremental step which is easy to execute and has simplicity of monitor and control. An example is: don’t say “lose weight”, you take a first step of replacing whole milk with skimmed.

For all of you P&L owners, and heads of sales or marketing, I know that you want improved profitability (and you know that the best way of getting it is through pricing, rather than market share or cost-cutting). So my question to you all is: what would be one first, baby step you could do in your organization to start moving things towards that goal? It can’t be “variable compensation for sales people based on delta in pocket margin relative to a baseline from today”, because that’s difficult and complex and time-consuming. It needs to be the equivalent of “buy only skimmed milk”.

The difficulty is that commercial professionals (sales, marketing, product management) have such complexity, and so many variable factors, that there can be resistance to coaching around switching behaviors.
To get around this, we need to think laterally. Let’s not tell people what to do differently, but tell them – in very specific terms – what we want them to do, and let them deliver it any way they please.

My recommendation is this: find the one metric in your business that is affected on a daily basis by the decisions of individuals in your commercial team. A classic would be discount from list, normalized by some dimensions that make sense. Another might be: % of target price attained. Then, publish that metric, by individual.

Maybe this is published with the numbers, maybe without. Maybe it’s published just within the sales group, or maybe it’s anonymized and published to the entire company (with appropriate commentary on why this being measured) – your corporate culture will tell you what is the right approach.

Why would this work? Frank looks at this and self-justifies that his book of business is fundamentally different from Angela’s and from Eddie’s (whether that’s true or not). But Charlie looks at this and doesn’t want to be the worst performer. Bob looks at it and knows that he and Delilah have similar territories, and that he is perhaps discounting more than he needs.

You can replace the metric with whatever is pertinent to you. You can publish with or without the numbers, with or without the names, and publish it to whomever feels right.

Let me know if you agree, or disagree. And if you implement such a first step, please get in touch and let me know how it goes.

BTW: you can read the first chapter of the book here: http://heathbrothers.com/download/switch-chapter1.pdf and I’d recommend that you then buy it.

– Ben Blaney

  • metrics , P&L , profitability

    Ben Blaney

    Ben has 10 years experience in the pricing space, managing people, processes, and projects, delivering operating income improvements in excess of $50MM. He leads Commercial Excellence at a division of Colfax Corporation. Prior to that, Ben led pricing for a division of General Electric, worked at Vendavo, and ITT Corporation. He is a Certified Pricing Professional, a Six Sigma Black Belt, and holds both major project management certifications (PMP and PRINCE2).