Pricing power—or the ability to raise rates without losing a customer—is hard to achieve in a commoditized business like transportation. But a report from Simon-Kucher & Partners gives reason to hope. The firm’s Global Pricing Study 2012, a survey of more than 2,700 executives and managers, said profits rise sharply when C-level executives take an active role in pricing. When the bigwigs commit to owning price, the result is a whopping 28% increase in EBITDA. With percentages like that, you’d think that every transportation CEO would take control of the pricing power gold mine. Apparently not!
At an industry convention last month, I conducted one of my patented HAB surveys (Hanging Around the Bar). Over 80% of the trucking company leaders I chatted with have very little to do with pricing. Almost everyone dabbled but few actually owned the process. Most relied on middle managers and sales reps.
With rates that are consistently below expectations in this industry, here’s how I would take control of the pricing power gold mine:
Own the gold mine. For smaller companies, “owning” pricing can be as mundane as the president approving every rate request before it goes out the door. For larger companies, it could mean making pricing topic No. 1 at every C-level and staff meeting. Regardless of your company’s size, the mere fact that the boss has made pricing a personal responsibility will mean increased attention by the entire staff. When it’s important to the boss, it magically becomes important to everyone else!
Create structure. The next step is to build a structure to deal with the complex nature of setting prices. Pricing is far from an exact science. You’re combining internal and external facts with a splash of market intelligence and a dash of industry instincts. At a minimum, you should communicate your goals as a business, define where the buck stops, and clearly articulate the roles of every pencil that touches the numbers. Establish who within the organization will do the day-to-day work to make sure your strategies get implemented.
Change the messenger. Shame on us for allowing sales reps to be the messenger. Pricing is too important to be left in the hands of weak-kneed peddlers who are remunerated on everything but profitability. Ownership of pricing means getting out of the office. People love dealing with the boss. It makes every customer feel important while sending a strong message that you’re serious about your agenda.
No knee-jerking. To a customer whose rates haven’t been increased or even looked at in years, your careful, measured approach is going to feel like a knee-jerk reaction. Give your strategies time. In my previous life, our C-suite took six months to plan and implement a $17 border surcharge. Accessorial charges are a critical leakage point in pricing—more often than not, these are waived by a sales rep taking the path of least resistance—and we wanted to make sure customers understood why we were applying this fee. Sure, I had to make a lot of sales calls. But, with top-level support, we added $700,000 of sustainable gold to our bottom line.
“Me-not.” We’ve all heard the song and dance: “We have to match these rates to get the deal.” Do you really think the customer is switching carriers because he/she has nothing better to do? Instead of getting agitated every time they’re presented with “me too” pricing, your sales reps need to focus on the real reason for change.
Hitting the road with your sales reps may not have been in your plans this holiday season; however, it’s the best way to show who’s in charge while making sure there is some gold under the company Christmas tree.
Mike McCarron was one of the founding “M”s in MSM Transportation before the company was purchased by the Wheels Group. Based in Toronto, he currently works for Wheels in mergers and acquisitions and can be reached at [email protected]. Follow Mike on Twitter @AceMcC.
