Drive for Profitability

Price for Capacity in the Oil Patch

Commentary by Dr. Reed Holden

From: “Halliburton Winds Down Discounts for Oil Producers” by Christopher M. Mathews and Austen Hufford in The Wall Street Journal, January 24, 2017

Everybody has been watching the ups and downs in the oil industry. The decision by the Saudis several years ago to increase production and let the prices drop has had global repercussions that are still being felt, let alone understood. During the downturn, domestic drillers did two things: they shut down equipment or they squeezed suppliers like Halliburton for deeper discounts. The net result for Halliburton is two years of dramatic losses, as they gave the discounts to keep equipment and people working. Good for them.

As the drillers have recognized that their true incremental cost per barrel is lower than the $64 originally projected, they are beginning to bring wells and equipment back on line. And guess what – they suddenly need the service companies to do that. Halliburton, one of the service companies, has decided to put the squeeze play back on the well drillers.

First, they told their customers, "Pay us more, or we'll take our equipment elsewhere." No question there...pay up or shut down. No wringing of hands. No worrying about losing business. Just a straight up "pay us more." Good for Halliburton. Customers that live by tough negotiations need to learn that they can die by them, too. In this case, customers are merely paying for a negotiating style that they themselves established.

Second, Halliburton has sent a signal to their customers: "We took the available equipment and used it to fill the incremental demand with a customer that shared our view of how to work together and make better wells." Wow. I'm going to say it again: Wow! These guys have nailed it.

They have set the standard for how they want to work with customers. They told the customers that still have archaic ideas on how to treat suppliers that we'll work with you but only when we need to. Halliburton has initiated the kind of capacity planning we've been talking about for years (Pricing with Confidence, Chapter 5). Only service the Price Buyers when you need to and use the time when they need you to charge them exorbitant prices. That is much higher than loyal customers pay.

Finally, they sent a message to one of their "constituents." In this case, their primary competitor, Schlumberger, needs to adopt the same approach.

I love it. Great pricing strategy, great approach, and a chance to send the abusive procurement people back on their heels. So many industries can learn from this pricing strategy.

Drive Profitability via the Value Trust Dividend

Commentary by Ellen Quackenbush

From: “Habit is How We Build Connection,”www.hbr.org

Consumer brands get it—they use repetition to burn their images into our brains. Think Nike, Apple, Coke, or even Tide detergent. We only need to see a fraction of their logo to recognize their brand. How can we create that same familiarity dividend for B2B products? Simple: Build the Value Trust Dividend. That is, build the confidence within the account that you are the go-to vendor to address their biggest business challenges and opportunities. Simply stated, that you will keep them ahead of the competitive curve in driving profitable growth.

We recently worked with a vendor that supports HR functions. Got it? We’re talking about HR, the ultimate cost center.

Yet this vendor has enabled HR to move beyond the traditional cost center role to being an integral partner in achieving corporate business objectives.

Here are the lessons this client achieved that you should emulate:

    • Talk your customer’s language. Understand their business strategy and local market challenges. Don’t talk product, rather enablement of the strategy they just announced to Wall Street.
      • For a retail firm with a multi-state expansion plan, the senior HR executive reported HR staffing performance as on-time opening of new stores, even in tight local hiring markets
    • Enable internal champions. Once you’ve proven the value of your solutions to a key stakeholder, make that person a hero by highlighting his/her value across functional organizations
      • For a hospital, with an aggressive acquisition plan, the HR manager highlighted time to hire for critical specialties, immunization compliance to reduce infection and patient re-admission, and tax optimization across acquired entities
    • Quantify value at the business level. In the age of aggressive procurement, rolling up the total profit and risk improvement you deliver to customers is insurance against the low-priced “ankle-biters”
      • As one seasoned sales executive said to me, “When the CFO encounters my HR executive in the hall, I want the connection to be immediate. You manage $50 million in compliance risk and saving for me. You matter.”
    • Stay connected. Never go dark on the value conversation. Continually engage on value.

Bottom line—Build the Value Trust Dividend by partnering with your clients to understand how you can help each other to drive profitable growth.

Expensive or Overpriced?

By Richard Harrington

Strange as it may seem, one of the greatest pieces of pricing wisdom I received was from an overheard conversation in a hot tub in a Las Vegas resort. As I was relaxing, the couple across from me were chatting about the meal they had eaten the previous evening. “That restaurant is really expensive,” said the man.

“Yes, but it’s really good,” replied his friend.

“You’re right,” he said. “There is a big difference between expensive and overpriced.”

Yes! That’s exactly right. There is a big difference between expensive and overpriced! If your product or service has differential value to the customer over what the competition can deliver, then you are a premium supplier and should command a premium price. It is imperative that you quantify this differential value so when procurement calls out your product or service as expensive, you can show them, line by line, what you bring to their organization and how the decision maker’s business would suffer if they didn’t have access to your solutions.

Alternatively, after performing the differential analysis, you may find that you don’t provide as much value against the competition as you thought. This does happen. Markets move and the alternatives reduce their price, leaving you high in the water and overpriced. This can easily happen in a growth market. The solution here is to reduce the price, but execution is key. This must be owned by the pricing team and applied across the board, rather than through ad hoc discounts through sales to any customer who asks. Uncontrolled price reduction, or discounting, in this manner is a dangerous game and can lead to loyal customers feeling ripped off when they find out.

Whether expensive or overpriced, the only way to find out is by talking to your customers and digging in to the data to ensure you are approaching pricing from a position of fact. If you don’t, procurement will always be willing to tell you exactly what they want you to hear!

Breaking the Commodity Trap

By Saad Shahzad

“We have nothing better than the competition. It’s all the same. I am selling a commodity. How do you expect us not to discount and still compete?” said the sales team.

I am sure many can relate to this argument. And we must agree that it’s not the salesperson’s fault. The reason they are selling a commodity is because they are trained by customers and procurement professionals to think this way. It could also mean that salespeople are not getting enough support from their marketing and product teams to counter the procurement professional’s argument.

Take a closer look.  Let’s start with procurement’s objective to buy the best product at the lowest cost. Even if it is best product in the market, it makes sense to extract more discount from the vendor. And the way to do it is to make the salesperson think that there is no difference between his product and the competitor’s. It’s straight up price competition. Many of our sales professionals fall into this trap, and that is where it is job of the support team to help them effectively negotiate and sell.

The role of marketing or any sales support function is to enable sales with the right knowledge to demonstrate business value. The entire customer-facing team should be prepared with options to keep the cost to serve aligned with price negotiated.

This customer-facing team should also be planning ways to break away from procurement-only relationships. For example, navigating the account and building deep and high-level relationships within the client with solutions that integrate with customer’s workflow. These actions break the commodity trap.

Inspiration for 2017 Price Increases

An Adele McLean Video

Price increases can often strike fear in the hearts of the most confident pricing people. How do we get executives to buy in?  How will we explain it to customer?  How will they react?  Adele McLean talks about how one intrepid entrepreneur raised prices and the lessons we can learn from him.  

Super Bowl Coaching: What Record Breaking History Can Your Sales Team Make This Year?

By Tannis Ashworth and Chris Mitchell

Mounting one of the most historic wins in Super Bowl history, the New England Patriots brought home the Vince Lombardi trophy – again! The first half of this year’s Super Bowl would be tough for any coach to watch: fumbles, incomplete passes, and turnovers to name only a few things Coach Belichick had on his mind as he walked back with his team to prepare for the second half. I know a few people who would pay good money to know what Coach Belichick said to this team who had a fierce and daunting task ahead.

Like football, the sales cycle can be divided into four simple parts; Plan the territory and prospects, Position the value of your offering, Negotiate your price, and Close the sale. Even the most seasoned sellers will confess the first two ‘quarters’ of the sale will often dictate the outcome in the second half. And if things are going to fall apart, it will inevitably be somewhere in the negotiation. It can be a huge hurdle for a seller to get past the obstacles, discouragements, and fumbles made in the first half and knowing what to do differently in the second half. Sellers need their coaches to get them past the mental barriers of the first half and help them face the third and fourth quarters with confidence to win the sale.

The following are some coaching guidelines to take the mystery out of your coach’s half-time chat and help motivate your sellers to give their best efforts, avoid discouragement, and become the best they can be in the negotiating field:

    • Don’t let them see you sweat. If you have been communicating sales numbers on a regular basis, your sellers know when they are falling short of plan. You’ll only make anxieties go through the roof if you distract them by aggressively telling them what they should be doing. Your sellers need to be reminded often of the strength they have and your belief in their ability to overcome obstacles.
    • Regardless of a well-positioned incumbent, encourage your sellers to give it their all at all times – Being a Patient Outsider does not equate to being a Passive Outsider. Encourage them to continue looking for new relationships in the account, new information to share with the customer, and unique ways to prove their value proposition in a compelling way.
    • Examine the flaws but make the negatives positive by using words that boost their egos and reinforce what they do well. In exchange for, “Why haven’t you called the client back?” try, “I think your customer would appreciate your fantastic follow-up today.”
    • Remind the seller of everything they’ve done right to this point and give them some latitude to make a few mistakes. You don’t get to make a sale if you’ve done everything wrong or don’t have a solution to offer. Get them focused on the steps they need to take to stay in the negotiation; develop their Give-Gets or pressure-test their strategy.
    • Physical stamina is equally as important as the mental ability to go the distance in a negotiation. Your seller’s need a balanced lifestyle and leading by example is always the best way. Coach Lombardi said it, “Fatigue makes cowards of us all!” So, get some rest coach and remember, “Stay calm and coach on.”