Pricing focus areas for training the sales team as part of a merger or acquisition implementation
Should Sales People Know the Floor Prices?
Thoughts on whether to communicate Floor Prices to your own sales team
Pricing in B2B sometimes including setting a Floor Price, i.e. a pocket price that sales people are not allowed to go below for a given customer, at least not without prior approval. They are usually internal numbers not shared with customers, for the obvious reason that any buyer worth his salt will immediately push for that price if he knew how low the sales executive is allowed to go. But what about what the sales person him or herself? Two main school of thoughts exist:
1) Only give the sales team indications of how they are doing against the floor prices, e.g. by using smileys or traffic lights (e.g. red if really in trouble, green if doing well against FP). But this doesn't really keep it confidential anyway: In one of our projects we once saw an ipad app demonstrated where the company had made an app where sales people could get indications of deal quality. It even had a "cool" slider, in which he could simply drag the slider to signify price changes and the colour would immediately change from green to amber to red as he dragged it to a lower price. By just stopping on where it turned red, he could see the exact floor price.
2) share the Floor Price numbers with the sales team. The risk here is that standing along this will very often lead to a race to the floor by the sales people who struggle to sell on value or generally are under customer pressure. If he knows how low he can go, sometimes it is easier to go there immediately, and close the deal faster. To counter this, if you choose to disclose the floor price, then it is also important to establish a Target Price at the same time, sending the following message to the sales team:
- Floor Price: you cannot go below this pocket price (without special approval).
- Target Price: this is the pocket price you should target for this specific channel/customer/product combination
If having both KPIs in your Revenue Control process then it matters less if you share actual numbers or just use traffic lights for the Floor Price. Because the sales people can only perform optimally versus their bonus scheme if they match both Floor Price and Target Price.
In value-selling organizations there can also be an argument that Target Price is the good communication tool as it reflects the value capturing number, and then it is better to obscure the Floor Price with smileys, traffic lights or other rough indications.