Profit2 Works With Electrical Distributor to Overcome Sales Resistance and Increase Margin
Client Profile:
- $90 million Electrical Distributor, 15 branches in 4 state area
- Servicing Residential & Commercial Contractor, Industrial & Utility Customers
- Client uses combination of customer-specific and matrix pricing
- Sales force traditionally has wide latitude in pricing
- The client had a concentration of sales very typical for an Electrical Distributor:
Over 2/3 of this clients sales came from just 10% of their customer items; these combinations average annual sales were $4,781 with an average purchase frequency of 6.7 times per year.
The Problem:
Client had attempted several internal and external margin improvement programs over the past decade. Even so, margin had dipped by 1 point in the past 18 months. Sales force resistance to increasing pricing was identified as the primary barrier to increasing margin.
The Solution:
The Profit2 program team decided that to calm the sales force we needed to first employ the “Play Defense” tactic.
We identified any customer-item where the customer had spent more than $1,000 in the past year and had purchased the item at least 3 times. In addition, we identified customer-items with fewer dollar sales but more frequent purchase patterns as well as items with higher dollar unit pricing that might attract customer attention.
Our goals for this “Play Defense First” step were to:
- Identify price sensitive sales
- Protect these using customer-item specific pricing records
- Not increase the current number of customer specific records
- Initially maintain the current margin for the item
- Only increase margins on more incidental items once these steps were completed
As a first step, P2 recommended a list of customer-item combinations that did not have a current customer record. There were a total of 8,432 combinations we recommended. The client sent the list of new records and other sales to each sales person. The sales person could add additional combinations based on their knowledge. The client review added a total of 421 additional combinations.
In addition, P2 analyzed the past 12 month sales on all current customer-item records.
Results
[pullquote1 align=”right” variation=”slategrey”]Fact: On average, 70+% distributor customer-specific pricing records are unneeded or counter-productive. [/pullquote1]P2 provided the client’s IT department with a file to macro import the protected combinations as new customer-item records at the current sell margin.This client had 11,232 customer-item records where the customer had purchased less than $100 over the past year. P2 submitted an import file to suspend these records. In the end, the client significantly reduced the number of customer-specific pricing records they maintain.
Next Steps:
Once this client “Played Defense First” they turned to the next tactic to overcome sales resistance, they “Started Slowly”. Learn how they increased overall margin +1 point just by focusing on sales where their customer spends an average of $250 per year on the item.
