Face it: Most companies can’t compete on price. And the good news is they don’t have to.
This is a very interesting article – all credit to The Wall Street Journal…

By now, we’re all aware of the slash-your-prices scenario many companies take as a given these days: Your customers demand more and have online access to product comparisons from multiple sellers; you face global competition from rivals that have labor-cost advantages; and the financial crisis has accelerated the commoditization of more and more markets.

The solution? Cut your prices to gain volume and scale.

That definitely works for a few companies. But the reality is a very few—think Wal-Mart or Costco or Southwest Airlines. In fact, the very success of these business models makes it difficult for their competitors to duplicate—think Kmart or Sears, or any number of bankrupt budget airlines.

This article is for everybody else: those who choose not to compete on the basis of cost and low price. This article is for companies that can and should compete on the basis of performance, for which their customers willingly pay higher prices.

Questions to Ask Yourself
1. Does your company continuously focus on improving its products and services in ways that are important to customers and that allow you to raise prices and increase profits?
2. Do you communicate regularly with customers to find out how you can improve your offerings, and to make sure they’re aware of any unique value you provide?
3. Do your salespeople speak to the right decision makers and others who care about these value benefits in the customer’s organization?
4. Does your company involve every department in discussions about product development and pricing strategy in order to maximize efficiency, quality and profits?
5. Does your company consider pricing when it’s still developing a new service or product instead of when the product or service is introduced to the market?
If you answered no to any of these questions, your company is probably not doing enough to maximize profits in line with products and services that customers want and are willing to pay more for. And if you lack a repeatable process for doing these things internally at your company, it is unlikely that you will effectively identify and communicate value externally with your customers: Like so many other important things in business, pricing and leadership begin at home.

By competing on performance instead of price, you shift the battle to where your company’s strengths lie—in the ability to deliver unique benefits. So-called performance pricers are adept at three core activities: identifying where they can do a superior job of meeting customers’ needs and preferences; shaping their products and their business to dominate these segments; and managing cost and price in those areas to maximize profits.

If you can find these performance segments, manage them cost-effectively, and communicate to the customer the extra value being delivered, then as long as your offering is superior to the competition or other alternatives, you will be able to boost both prices and profits.

For an idea of how to become a master of performance pricing, let’s consider a global chemical company we studied.

For years the company had a pretty typical sales rule: It would take any order at any acceptable price. That sounds familiar, no doubt. But by 2003, it had recognized this wouldn’t generate acceptable shareholder returns or growth.

So the company switched to performance pricing, using a continuing four-step process that any company can duplicate: Identify value opportunities, choose which ones to prioritize, align their value and price, and constantly communicate to customers the value being provided. Here’s a look at each of their four steps.

Identify Value Opportunities
The leaders of the company started out by repeatedly asking in meetings across functions: What can we do to help our customers succeed or be happier? Every product, service and benefit the company delivered to its customers was examined to better understand all of the ways in which it had some impact on the customer, and how the offering could be improved.

Take a simple example: The company sells rubber stoppers to packagers of pharmaceuticals that use the stoppers to cap containers of injectable drugs. The company had long viewed the stoppers as a commodity. They’re easy to make, perform a simple function and cost very little. But looking at them afresh, from the customers’ perspective, it recognized that the stoppers could deliver multiple benefits to customers, and that these benefits could be quantified and ranked in terms of the value they produced for the customer.

The stoppers’ low price was only the first benefit. Their design could be tweaked to improve customers’ packaging-line speeds, lowering their operating costs. And because the customers used the stoppers to seal vials with different contents, making stoppers in different colors was recognized as a way to help hospitals and doctors reduce errors by making each vial more recognizable, and thus lower their insurance costs.
Set Priorities
After detailing the benefits, the company had to decide which products to develop further and how to invest its resources accordingly.

To be considered for performance pricing, an offering had to meet two basic tests. First, it had to have either a strong competitive position in its market or a highly ranked benefit to the customer (benefits were ranked, from low to high, in three groups: offering low acquisition price, helping reduce operating costs, and improving sales by enhancing quality). And second, the product had to be manufacturable at a cost that yielded attractive profit margins.

Thus, any product whose main benefit was its low sale price was likely to be rejected. But so were premium products if their costs were high and their projected total market too small. For example, the company had done well with a certain dental-filling product, but the total potential market was extremely limited and the investment costs would have included long, expensive testing of the product on people.

The stoppers, by comparison, looked promising. They offered highly valued benefits to customers, and could be produced at low cost.
Align Price and Value
The next step was to set higher prices in line with what the customer was willing to pay.

The key here is being able to document and quantify the precise nature of the benefits that your products offer, and to figure out what their tangible value is to the customer, in terms of acquisition cost, operating cost and added value to the end user. Once the supporting data are in hand, then you sit down with the customer to discuss what the new price should be.

In the case of the rubber stoppers, the company used the data to successfully argue to a customer that two products, while nearly identical in appearance, should be priced very differently because of the different ways they were used. One stopper sealed vials of a vaccine for chickens that the customer sold for less than $5 a vial; the other sealed vials of an anticancer medication that sold for more than $1,000.

While the stoppers looked alike, the higher-value application had tighter tolerances and came with significantly more technical assistance, service responsiveness and quality-control data, due to the difference in the costs and risks associated with the two stoppers. Indeed, failure of the seals on a few of the anticancer vials would have far greater impact on the customer’s bottom line than a few ruined vials of the chicken vaccine. And, while both kinds of stoppers helped production—in terms of high packaging-line run efficiency and low scrap rates—higher efficiency for the anticancer vials, resulting from the technical assistance and tighter tolerances, translated into increased profits for the customer.

Thus the chemical company proposed a significantly higher price for the anticancer-vial stopper, and presented reams of data from the tracking system to support its argument. The customer later came back with figures of its own that painted a lesser impact than the company had suggested. But the customer’s figures were in the ball park, the chemical company said. The two companies agreed on a new price for the anticancer stoppers that was a multiple of the price for the chicken-vaccine stoppers, and both parties felt like winners.
Get Cooperation
Such a system relies on a lot of help from the customer, and getting that cooperation takes work. The chemical company had to display a thorough understanding of all the issues the packager faced to win its case for the differently priced stoppers. After such increases are won, continuing efforts to communicate why higher prices are justified can bring other benefits as well.

By adopting performance pricing throughout the firm, over the next five years, the chemical company’s profits grew 10% annually in a market growing less than 2% a year.

The approach also provided a strategy that allowed the company to weather the recession better than competitors: In 2009, industry volume declined more than 20%, compared with 14% for the company. But, despite lower volume, the company’s return on sales increased by more than 40% due to its ability to identify value opportunities, prioritize requirements, align value and price, and communicate value to cost-conscious customers.

Frank V. Cespedes is a senior lecturer at Harvard Business School. Elliot B. Ross is chief executive of MFL Group, a Beachwood, Ohio, consulting firm that assists clients on growth strategies and pricing. Benson P. Shapiro is the Malcolm P. McNair professor of marketing emeritus at Harvard Business School. They can be reached at reports@wsj.com.

Last year I was fortunate to attend a function sponsored by The Federal Government’s Enterprise Connect Programme and The CEO Institute. One of the speakers was the host, Frank Gavrilos, MD of AC Labels.

Like many small business owners, Frank has a background in corporate management and “jumped of the cliff” a number of years back when he took over AC Labels. Frank spoke how he has successfully built on a foundation the founding owners had laid, and what has worked for him. Not surprisingly, sound business principals were at the root of his management style. Frank saw the following as the key issues focused on in building AC Labels:

1. Grow the Pie
Frank wasn’t talking about simply growing market share, but about looking at what other markets he could address. This meant a change of culture within his sales force, but one that now means he is building his business outside the original confines.
2. Rationalise the Business Plan
- Like any successful business owner, I am sure Frank has a clear vision and strategy for the business. He has this documented in a business plan but he stressed the need to remain focussed on core competencies and to create networks and alliances that will help turn the business plan into a reality. And another insightful comment was to “resist commodity pressure” – focus on your “value add” and stay true to your business plan. Lastly, to turn your business plan into actions through a solid “business team” and share your plan with them.
3. Ruthless Cash-management”
Frank spoke highly of his Financial Manager and his “affair” with his balance sheet. This is one of the best pieces of advice any business owner could take on board. Unfortunately I have seen too many profitable businesses go under due to poor cash management.
4. Focus on execution, not strategy
Now I am sure Frank didn’t mean here to forget point 2, but to not get carried away with “navel gazing”. To succeed, the business strategy must be executed and deliver real and immediate benefits to the business. In Frank’s situation, this meant has meant, among other things, a focus on customer service, print quality.

Frank went on to talk about things he would have done differently and what he sees as the most pressing issues in the current market environment – I’ll share these in the next post.

Recently I was with a group of sales managers and a discussion began around the question, “What separates top producing sales people from the others”?
The discussion was lively and often animated, but in the end, most agreed on the following list of ten points.
Take a look at the list and let me know if you agree, or if you would have added other items to the list.

1. Clearly Defined Expectations
Does everyone in the organisation understand the company’s vision, strategy and objectives? Sound performance across all areas of the business requires the clear communication of expectations. For sales staff, for example, are you looking for short term revenue or are you prepared to forgo this for more strategic sales that will have longer sales cycles? Sales representatives should:
• Know their roles and responsibilities – what they should and should not do. For example, should they let customer service representatives service while they themselves focus on consistently executing the sales function?
• Understand their targets.
• Set goals and use these goals to measure their performance.

2. Planning
Planning and organization are critical to sales success. Each sales representative must develop and execute a strategy that proactively addresses the dynamics and changes in his territory. Effective planning means establishing clear objectives and organizing specific sales activities into integrated yearly, quarterly, monthly, weekly and daily work plans. The sales representative should:
• Develop a plan for maximizing the territory’s potential.
• Follow a process that begins with an annual plan and filters down to shorter-term plans – even to daily plans if this is appropriate for the type of sales activity.

3. Understand The Customer’s Needs & Business
It is often said a good sales person is defined by “3 E’s” – Ego, Energy and Empathy.
The most successful sales person has highly developed empathy that allows them to see things from the customers perspective and position the sale to best meet their needs. Each sales representative should:
• Focus on the customer as a “market of one.”
• Drive discussion around the strategies, objectives, and initiatives of his customer’s business.
• Avoid dumping information, and instead, listen while the customer does most of the talking.
• Communicate effectively at all levels in the customer’s business. This includes participating in quality business discussions with those higher up in the customer’s organization chart and if appropriate bringing in those higher up in their own business.

4. Creativity & Innovation
Developing new and better solutions to customer problems requires creativity on the part of the sales representative, the ability to communicate this to those in their organisation making product decisions and the talent to influence these decisions . The sales team must understand that:
• Required solutions are not always easy to find.
• The sales cycle at times may become a drawn out process. The sales representative must find ways to stay engaged and lead that process.

5. Create new opportunities
Good sales people don’t just take orders and they don’t promise the world.
The most successful sales people are solution providers who qualify and listen, always looking for new opportunity, either from existing customers or new prospects.
Top-producers not only take advantage of existing opportunities, but find ways to create them as well. Our sales representatives must understand that:
• Selling requires more than sustaining current business.
• They must create new business not only within current accounts, but also through new accounts.

6. Know Your Company & Your Competition
If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.
- Sun Tsu – Chinese Military General: lived c500 – 320 BC

Only by fully understanding the resources and total capabilities of your company and that of your competitors can we know what it is we take to market. Because of this, sales teams must understand:
• Their company’s capabilities and those of their competitors – what they do well and not so well.
• The suppliers they represent, product offerings and the applications that they best address.
• And most importantly the value propositions and competitive advantages of everyone in the game.

7. Know the Market
“The ability to learn faster than your competitors,” says business strategist, Arie de Geus, “may be your only sustainable competitive advantage.” Because markets and tastes change, our selling opportunities change. Our sales representatives must learn all they can about their selling environments, including:
• The markets and industries in which they compete.
• The strengths and weaknesses of their competitors.

8. Personal development
Tennis champion, Venus Williams’ candidly observed, “You either improve or retire. I try to keep evolving.” Likewise, survival in today’s business climate mandates a continued evolution. “All of the top achievers I know are life-long learners looking for new skills, insights, and ideas,” says author, Denis Waitley, “If they’re not learning, they’re not growing . . . not moving toward excellence.” Our sales representatives must:
• Desire continued growth and accept the support our company offers to achieve it.
• Commit to continued growth (When is the last time they did something for the first time?)
• Agree to after-hours development and personal investment – one of the most successful sales persons I ever managed had a budget to invest in his personal development. It was a percentage of his commission so the more he earned, the more he developed.

9. Collaboration
Collaboration allows us to “huddle” with co-workers to produce greater results than we could ever achieve on our own. It’s based on the belief that early involvement, teamwork, defined responsibilities and processes can turn good ideas into dynamic solutions. Our sales representatives should demonstrate the willingness to share knowledge and expertise.

10. Integrity
I have ‘stolen’ this from an anonymous quote sent to me by a friend, but thought it too good to leave out.
More people are watching you than you think. The University of Notre Dame Athletics Department advises participants in its sporting events to be their “best” selves because “everything we say and do (and don’t say or do) sends a message about our values.” Notre Dame describes integrity as doing what’s right even when it’s unpopular or personally costly. “By not making a wrong right, you are supporting the wrong. By inaction, you condone the behaviour. If you know the truth, speak it loud and clear. In other words, don’t hide behind the presence of officials – play as if you are refereeing the event.”

What Are Your Thoughts?
So there’s my list of what separates top producing sales reps from the rest. What did you think of this list? Do you agree? Disagree? Have others to add? Let me know – I look forward to your input.