Price implications of the two models. Nowhere is the importance of a clear-cut business model more evident than in price negotiations. In the Adaptive model, the salesperson negotiates pricing based on purchasing commitments, customer specifications, and other factors related to the cost of doing business. For instance, a customer that wants special packaging on selected lengths of millwork should expect to pay a premium for the special consideration. In a Franchise model, the salesperson should not negotiate because a stable price structure has been instituted to create equity and fairness for all customers. Moreover, in a Franchise model the pricing structure should minimize negotiations—i.e., the best customers get the best price. Salespeople in a Franchise model should learn that their requests for special pricing likely will be denied.
Making the Right Choice No doubt, the Franchise model is the most attractive to pro dealer managers, but there are situations in which a company should, in fact, employ an Adaptive model of business. For example, when a dealer is focusing on large-volume accounts that wield immense purchasing power, the Adaptive model is required and can be profitable. As the largest builders in the country increase market share, they also increase purchasing power. Therefore, the dealers that target this business should be prepared to adapt to customer demands and also must strive to protect their profitability in the process.
One Indianapolis LBM supplier I work with uses the Adaptive model, catering to large-volume builders with unique billing, ordering, and delivery policies designed to support individual customers. For each big builder client, the dealer offers different discounts, adjusts delivery policies, varies load assemblies, and so on. In this case, the dealer has fewer than 10 customers and an Adaptive model makes sense.
But when an LBM dealer has many small- and medium-volume accounts, a Franchise model is usually much more profitable. For example, at a Midwestern millwork dealer that focuses exclusively on small to medium-size builders, the owner has discovered that it is more cost effective to pass on special requests that would bog down the system. The company focuses on builders that fit its business model and lets competitors handle the complex special orders.
Defining Your Approach In order to clarify the model of your business, consider the following:
In the end, it is up to a company’s leadership to decide what business model works best and whether or not both must be employed for different customer segments. Without a clear sense of purpose, it is impossible for salespeople to know the boundaries of their behaviors. If you don’t have rules and a clear sense of purpose, then you may soon have your customers running your business for you.
Rick Davis is president of Building Leaders, Inc., a Chicago-based sales training organization. 773.769.4409. E-mail: rickdavis@buildingleaders.com
