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May/June 2014 35 The difference is material. The material matters in material handling Still stuck on metal or wood? Get more value out of your containers with composite products from MFG Tray. Composite construction ensures exceptional strength, stability and temperature compatibility. Choose from a full line in a variety of sizes. Including dough boxes. Pan extenders. Bagel boards. Display and cafeteria trays. And prep and storage containers. Contact your local distributor, call (800) 458-6050 or visit www.mfgtray.com. CHOOSE COMPOSITES The material matters in material handling The material matters in material handling The material matters in material handling The material matters in material handling Should Salespeople Have Pricing Authority? By Tom Reilly info@tomreillytraining.com "It is a commonplace observation that work expands so as to fill the time available for its completion … work (and especially paperwork) is thus elastic in its demands on time." Cyril Parkinson, a British Naval historian and writer penned these famous words in his tongue-in-cheek essay in a 1955 edition of The Economist. This principle became known as Parkinson's Law. Risking claims of arrogance, I offer a 2014 update, Reilly's Law. Discounts are elastic in the authority conferred on salespeo- ple by their management. Salespeople will generally choose the path of least resistance by offering the biggest discount allowed by management. If you allow salespeople 10 percent leeway in pricing, they will offer a 10 percent discount; a 20 percent leeway discount will result in a 20 percent discount, and so on. I do not make this claim lightly. Having trained more than 100,000 salespeople in the past 32 years, I have wit- nessed this reality firsthand. Price-oriented salespeople ratio- nalize by saying things like, "We can make it up in volume." "Some money is better than no money." "Three percent of something is better than 10 percent of nothing." Or, "Let's just get the business, and we will figure out a way to make money on it internally." That last attitude was probably implanted into their minds by management or operations. There are several reasons why salespeople should not have pricing authority. First, pricing is a strategic decision, and salespeople live at the tactical level. For discounting to be effective, it must be strategic, not tactical or transactional. When discounts are offered tactically, they are meted out arbitrarily to salvage an order. There is no rhyme or reason, which is the definition of random. Because pricing is stra- tegic, it affects image—both company and product. Thus, discounting re-positions a company or product. Positioning is the responsibility of marketing, not sales. This re-positioning invokes negative value attribution, which lowers customers' expectations and colors their perception of the product and the supplier. Second, pricing affects profitability, which is a management responsibility. The selling price affects return on assets and return on equity. Both are measures of management efficiency. ROE is the primary metric used by investors like Warren Buffet to determine the financial viability of a company. Discounting to achieve volume may also affect your fixed-cost base. You may incur the cost of additional resources to support the vol- ume generated by lower profitability business. When you are losing money on a piece of business, you don't make it up in volume. As Buffet says, "When you're in a hole, quit digging." Third, discounting may antagonize other customers that continued on page 36