Loading ...The Money Train (August 2008)
Fast-tracking to pricing disciplines.
By Graham Garrison
When Jeff Major is working on an estimate for a customer on an intricate project, he’ll often call on the services of a mock up.
“As you get a project that looks intricate, or has an unusual fold, I go and create a mock up, find the stock that’s closest to the piece to include it with estimates, so there is no doubt about the project in the estimator’s mind,” says Major, an account executive at Sacramento, Calif.-based Dome Printing.
The process doesn’t end there, however. One of Dome Printing’s three owners, who also happens to be VP of manufacturing, takes a close look at the quote to double check processes. By the time the number reaches the customer, just about every facet of the project has been given a thorough examination.
“Really, this is where you can help the customer [save] money, by looking at how you can produce that job,” he says.
Customers no doubt like to hear the word “savings.” There are obvious benefits for the printer as well in having a sophisticated estimating and pricing system. But how printers get from the initial number to that final invoice often varies. CANVAS spoke to printers across the country to get a general feel on pricing disciplines and philosophies.
The difference
That estimates don’t always line up with the final price is a given. But the benefits of getting the numbers to line up as closely as possible resonates on many levels. Production costs are accounted for, scheduling conflicts are avoided, press runs maximized, and there are no surprises at the end that may jeopardize the trust of a client.
The first step in maximizing the process is separating the two functions, says Gary Cone, vice president of Litho Craft in Lynnwood, Wash., and author of “Price Doesn’t Count … Getting Customers to Want to Buy From You,” which focuses on day-to-day selling styles and techniques. Cone says that prints sales reps should look at estimating as a science and pricing as an art.
“Estimating is a repeatable process, a scientific process,” he says. “Pricing is an art. Different customers may warrant different pricing in different situations.”
“An estimate from your estimating system, it represents the cost of doing business, paper cost, labor and profit,” says George DeMambro, VP of sales for ACME Printing.
Discrepancies in estimating may occur when the science gets bogged down by human factors. Cone says that although an estimator should be able to take a project’s specifications and come out with the same price every time if the specs are exactly the same, it doesn’t always play out like that.
“We all know that sometimes it won’t work that way in real life because emotions come into play,” he says. “An estimator can have a headache one day and that will affect the price. The estimator may be a little upset with the salesperson who is requesting the price, and that’ll affect the price. But in theory, estimating is a science, a repeatable process, day after day. Pricing is done after the estimate is done, based on the particular circumstances of that customer, when their job is due, their payment history, all of these other things that may come into play and may cause the job to be valued more by one customer or less by another or enable you to charge more or less from one customer to another.”
Calculating price
There are a myriad of ways printers calculate prices. Often, it’s a reflection of an overall business philosophy. Intelligencer Printing sales rep Donald LaClair says his company considers several factors.
“With knowledge of cost, pricing will be based on plant load (schedule), amount of value added (manufacturing less materials and outside purchases), history with client, and the competition,” he says. “Another important consideration is whether this is a new business opportunity. So, in effect we use all of these methods for determining price.”
Cone says that printers can use four different types of pricing:
• Cost-based. “Based off of figuring your actual costs and putting on pre-subscribed markups to them.”
• Results-based. “A little more tricky. Learn the results the customer is looking for and set your price based on the value of those results. This may not be scientific, but it can be very profitable.”
• Market-based. “Judge your prices on what everyone else is charging. (This will generally lead to charging too little.)”
• Price list. “Have a price list. The disadvantage is that some of these prices may be based on the ‘hope’ that over a period of time what you are charging will average out to be profitable.”
So what’s the best method? According to Cone, consider all of them. “I use a combination,” he says. “Different ways of pricing for different customers in different situations if you can do it. I use cost-based pricing as a floor from which to start, so you’re always sure that your costs are covered and then go from there based off of market-based or results-based.”
Don’t sell yourself short
What Cone doesn’t recommend, however, is an exclusive market-based approach. At least for long-term thinking. Bottom-line decisions often factor in to maximizing your pricing philosophy, especially in a tough market. Tapan Bhatt, director of marketing for Vendavo Inc., a price management and optimization software company, says there are a handful of ways a company may overlook how to make pricing work for them. (For more on Vendavo, see accompanying sidebar)
• One-size-fits-all approach. “Many businesses charge every customer the same price for a particular product regardless of their perceived value of the product or cost to serve, which can vary significantly by customer-segment attributes. This approach results in money left on the table in every deal.”
• Ad hoc price setting. “ERP, CRM, and SCM applications collect information that can help determine pricing. But often this information is ignored in favor of a “gut feeling” or an ad hoc approach to setting prices. The result is money lost through ineffective pricing.”
• Manual, error-prone processes. “Most companies have highly manual, disconnected processes to manage prices and communicate pricing to customers. This impacts response time to market changes and introduces errors in pricing. These processes are even more limited because they are not integrated with other applications.”
• Ineffective deal negotiation. “All these limitations leave salespeople negotiating in the dark. Without clear visibility into customer segments and policies, it’s impossible to negotiate with a customer in a way that best serves the bottom line. The result is lost profits and dissatisfied customers.”
What customers expect
For all the merits of a structured system, the experts suggest that pricing isn’t always the deal maker or breaker for clients, especially for repeat business.
“I would say until you have established a solid reputation and relationship with your client, pricing will be a large factor,” says LaClair. “Once you have proven yourself as a viable partner, the impact and value of quality, service, and reliability take over.”
Cone says a print sales rep’s perception is different than a client’s when it comes to price. The most important time to sell is before the price is quoted. The client is more in-tune with the finished product and expectations. Therefore, a seasoned print sales rep can “sell that trust and security and not have to sell on a low-price basis.”
“If you respond to a customer’s request for a price by just giving them a price, then you the salesperson are creating a price sensitive commodity, giving the customer no other basis on which to judge you on other than the price that you are just spewing out,” Cone says. “Sell the customer before you quote the price, not after.”
DeMambro says that customers aren’t looking at their print projects as simple ink on paper, but solutions to their problems.
“Customers are looking for a competitive price but it needs to be coupled with the printer’s ability to do proper planning, knowledge of the project and a promise to perform,” he says. “Then making good on the promises. Customers are savvy buyers, they want results and a fair price, printers are savvy businessmen, they want a fair price and a loyal customer.”
Major says that in the end, all of Dome Printing’s pricing disciplines are ultimately used to make a project work for a customer. They usually work off a customer’s budget up front to determine what services to employ. Having flexibility may land a few more projects, and keep the clients and their varying wants and needs happy. “When it’s a tight job and pricing is important, or we’re real close, we will work with the customer, and do what we need to do,” he says.
Sidebar: Price Factors
Need some wiggle room in the bottom line? The following are cost cutters you can offer your budget-minded customers.
Scheduling
There are many ways to tweak scheduling to cut costs. Some printers have week-round production hours. Others can move up production time, for a fee of course.
“Someone who needs their job turned in 24 hours, a big job, should pay more than someone who is willing to wait a week for it,” says Gary Cone, VP of Litho Craft.
Amy Labowitch, VP of marketing for Dome Printing, says a mutual agreement to fast-tracking the production cycle – meaning less time for tweaks or revisions – works too. “If I have to streamline processes, then [the customer] has to streamline processes too.”
Paper
Are your customers well-versed in paper quality? Are there products that run more efficiently than the paper specified on the job?
Matchprints
Printed matchprints shipped to the customer can add up quick. “You could spend $1,500 on proofs alone, if that’s what they want,” says Jeff Major, an account executive at Dome Printing.
A compromise may be producing a matchprint sample, that is, a color matchprint of the cover and some pages, but not the entire project, to cut costs. Customers may opt for online pdfs too.
Shipping
Sometimes selling a print job can be as easy as highlighting the shipping advantages. With courier rates rising due to fuel costs, regional or local shipping may be what new clients are looking for. Or, if you can cover the shipping in-house, that’s a selling point as well.
Sidebar: Confused on pricing? Call an expert.
Nothing is set in stone – especially pricing. But understanding that concept and accepting and implementing it in a challenging marketplace are two separate things.
Tapan Bhatt, director of marketing for Vendavo Inc., a price management and optimization software company specializing in helping businesses with pricing, offered CANVAS a handful of misconceptions that companies often make in pricing decisions.
1.
Companies feel that they have no control over pricing and that they need to accept what the market will bear.
2.
Companies are reluctant to set segment specific pricing – they take the path of least resistance and take a one-size fits all pricing approach.
3.
Companies are often very volume-centric and feel that any perceived increase in prices will hurt their volume even when that may not be the case.
When companies need a fresh perspective on a particular topic, usually in venues such as promotions, marketing and even production, they’ll look outside to an expert/consultant. Well, why not pricing?
One of Vendavo’s products, the Enterprise Pricing Suite, is a “comprehensive price optimization and price management application,” according to the company. It is designed to help business-to-business companies improve profits by 1 to 3 percent of sales, representing margin improvement of 10 to 30 percent.
“The suite combines pricing science, best practices, and enterprise-class software to drive improvements in average prices at every stage of the pricing process,” says Bhatt. “Added up, these improvements deliver big increases in profits. The goal is simple: make better pricing decisions and more money on every deal.”
