In our industry, we often set up our pricing in three tiers. The lowest is for new customers to get our foot in the door. The middle level is for our normal customers. The highest level, and most profitable, is for our best customers who appreciate what the salesperson and our company do. It is to this highest level that many salespeople struggle moving their customers. They feel that it is counter-intuitive that we charge our best customers our highest prices. This is when I invoke my “Pigs get fed, hogs get slaughtered” analogy, and we take an in-depth look at our relationship with our customer.
The idea behind the analogy is that there is nothing wrong with being satisfied or profitable, but if one is too greedy or too ambitious, it can lead to ruin. If we are doing nothing extra for the customer, if we are providing no additional value to the transaction or relationship, and if we charge more because the customer is not paying attention, we may be acting like hogs.
However, if we are satisfying a need for the customer, like mitigating their risk by fixing a design flaw, is it wrong to charge more and be a pig? If we keep them informed on the latest products and make their business more competitive, is it wrong to charge more and be a pig? What about when we make their job go so smoothly by acting as their de facto project manager, is it wrong to charge more in that scenario and be a pig?
Too often, our salespeople do not recognize the value they provide. When you pressure them to raise their gross margins, they immediately fear that the customer will feel that we are being hogs, when in fact the customer probably values our services more than we think. Our best customers don’t question our prices. What they question is when we fall down on offering the consistent value that we typically provide.
Where I see the hog side of things, it usually comes from a demanding customer. I once had a customer who was a master of obfuscation when it came to our relationship. The customer came to my attention when he asked to pay off his account, using a personal credit card. It was a rewards credit card that would have cost us in excess of 3% in fees. So, what I did was start examining all of the aspects of our relationship with this customer. Over time, he had insisted on a model home financing program, marketing funds, a rebate program from us and manufacturers, and of course, at all times, we needed to be competitive with whatever bid he presented from a competitor.
It became painfully apparent that while this customer was clever, he had become a hog in our relationship. He accounted for almost 60% of the location’s business, but we actually were losing money servicing him. We also pointed out to his salesperson that while this customer took up more than 70% of his time, his other customers accounted for most of his commissions. In the end, we parted ways with the customer, and sadly, the salesperson left us so he could continue to sell the customer. Needless to say, we were more profitable and happier without the customer who insisted on being a hog.
It is said that a healthy relationship is where both parties give 60% and only take 40%. In these relationships, you are focused on making your customer successful, and your customer does not mind that you and your company are profitable, because he or she is also profitable as a direct result of your salesperson’s efforts. I like to think that there is a reason there are pigs, but no hogs in the nursery rhymes we grow up with. They teach us that there is nothing wrong with being pigs. The one thing they don’t tell us is the rest of the story about the last pig who went wee, wee, wee all the way home—with a big, fat commission check.