Is your sales force a barrier to more profitable pricing … or is it you?

Abstract

Purpose

The article seeks to discuss how and why it is possible to motivate a sales force to follow the guidelines of a consistent pricing policy that promotes profitability and increases margin, and which is beneficial to both providers and consumers of products and services.

Design/methodology/approach

Theories and examples stemming from the authors' research and experience with the subject matter are stated. The sales incentive theory in particular is supported by a specific formula that determines the sales credit someone would earn for making a sale based on profit contribution rather than price.

Findings

While employing flexible pricing policies in competitive markets is enticing for suppliers, it can ultimately lead to price erosion and falling margins. A sound pricing policy lets customers know that the price they are paying is related to the value they receive, and keeps salespeople from dealing with long, complicated negotiation processes. While many managers worry that their sales force won't accept such a change, most salespeople will adopt it if the new policy is implemented well. The key is to recompense salespeople for driving profitability instead of just revenue and sales volume.

Originality/value

This article addresses an ongoing problem that many companies face as they try to win and maintain business using flexible pricing policies to cut customer‐specific deals. It discusses how and why it is possible to change this behavior using sales incentives that reward profitable sales rather than just sales volume.

Citation

Nagle, T. and Hogan, J. (2007), "Is your sales force a barrier to more profitable pricing … or is it you?", Business Strategy Series, Vol. 8 No. 5, pp. 365-368. https://doi.org/10.1108/17515630710684484