Sales Pro Magazine: The Great Sales Debate: Revealing the Pricing Floor

August 21, 2013- 

By Martin Simoncic

You can ask any sales manager and they are likely going to have an opinion on whether or not to reveal the pricing floor – the limit on how low a price can be set for a product or service – to their teams.  A significant number of companies have voiced their opinion on the topic and both sides of this ongoing debate of providing pricing guidance to sales teams have a valid argument.
  
Proponents argue that providing floor, target and expert pricing guidance gives salespeople far greater confidence to negotiate – after all one of the basic negotiation tactics is to provide a walkaway price point that gives salespeople a better understanding of their range. This camp also contests that providing no guidance at all means sales executives will rely only on their own personal experiences and gut feel, which is often biased.
  
Those who oppose showing the floor believe that today’s salespeople are driven by selling more volume, and if given the floor, will quickly gravitate to floor prices.  Since many organizations do not require additional approval if the price is above the floor, sales people will be driven to sell at that level and not push for bigger, more profitable deals. 

Both arguments have merit, and, as with many others debates in the pricing space, there is no one-size-fits-all answer for all organizations.  What’s the right strategy for your company?  It will likely require a deep analysis and assessment of your sales organization. 

If a large percentage of your sales team’s incentives is based on margin; if they understand how different price points impact margins; and if they have tools to consistently analyze margin performance of their customers and products, and compare their performance to their peers, then showing the floor price will indeed improve the margin performance.

If the culture of your sales team is to drive volume, or if they don’t have the analytical capabilities and tools required to consistently assess margin performance, you will be better off not showing the floor and providing only the target and expert prices.

This debate is bound to continue and in the end, there is only one way to find out the right answer for your company and that is to test both approaches.  More and more sales organizations are looking to analytics to help better understand the buying process and predict how their buyers might react.  Being transparent with customers around pricing is becoming more commonplace as buyers are increasingly expecting on-demand information.  The question is: is your sales organization ready to take advantage of the digital age?

Martin Simoncic serves as vice president of professional services at PROS, a big data software company. He has led PROS customer implementations in numerous industries, including petroleum, chemical, oil field services, office products distribution and shipping services.