Colin Tourick explains
how lessors can set optimal prices for every product, lease term
and payment profile.
years, my colleagues and I have probably discussed pricing with
around 300 leasing company executives.
Some tell us their
salespeople have great market knowledge and are even shown
Others talk about ‘the plan’.
“If we achieve that plan margin and – hopefully – generate enough
volume, we will hit our profit plan, the parent company will be
happy and everyone will get their bonus.”
Another group set a target
margin for each sales channel, reflecting the cost and risk
profiles in that channel; eg, the public sector team should earn
less margin than the SME team because the operating costs per deal
and credit risk are much lower.
A fourth tell us they use an
RoE formula to price their deals.
I am oversimplifying, of
course. In fact many companies use several of these approaches and
often in very sophisticated ways. However, these approaches don’t
deliver the optimum price: as high as possible but still
deal-winning. And customers only hand over competitors’ quotes to
drive down the price.
Lessors should identify
situations where they are already the cheapest and make sure it’s
only by a few cents or pence.
When a salesperson issues a
quote they believe they are pitching the price just right. Yet when
we compare quotes issued by different salespeople (or teams, or
departments, or divisions), we always find wildly different quotes
being issued for very similar deals. How can that be
We also find that when
margins are slipping, companies manage prices centrally, usually
adopting one of the approaches listed above or setting a high
minimum margin. This is a recipe for disaster; without investing
time or attention to set optimised prices, volumes decline and
salespeople become demotivated.
Often it’s unnecessary to
pitch low to win a deal. In one piece of research, the directors of
500 large companies were asked whether they were in a price war.
55% said yes. When asked who started the price war, 95% said it was
It’s not right that a vendor
leasing business can issue an online quote today without the system
realising it issued a higher quote two weeks ago to the same client
for the same kit – which was accepted.
Lessors should aim to set
optimal prices for every product, lease term and payment profile,
tailored to each individual client and delivered in real time at
the point of sale without human intervention.
The first step is to identify every piece of internal and
external information with any bearing on competitiveness, build
this into a decision matrix, use this in live quoting, identify how
successful each decision and quote has been, and use that
information to modify the price quoted on similar deals next