This great article published on Modern Distribution Management MDM.com offers “4 Strategies for Smarter Distributor Pricing“, written by Steve Deist. These strategies are:
- Think strategically.
- Ensure you are capturing the value you deliver.
- Develop a clear picture of the current state of your pricing.
- Treat pricing as a process, not a one-time project.
Profit2 has worked with more than 200 distributors and manufacturers to help turn these pricing strategies into the tools and tactics that really work. So, we thought we’d share how we approach each of the 4 strategies listed in the article.
Think strategically – Diest recommends taking a long-term approach to pricing and to rely on customer intimacy to maximize lifetime customer value. At Profit2, our pricing process analyzes every customer-item combination. This process generates specific target price recommendations for each item based on the specific customer. In combination with ERP pricing hierarchy, distributors can gain margin by improving pricing on incidentals and improve sales by charging the right price on price sensitive sales.
Ensure you capture the value you deliver – Diest cautions against “sneak[ing] in price increases on low-volume items” without offering enough value to justify it. Doing so, he warns, can create customer suspicion and short-term margin gains that “melt away over time”. Our process, instead, generates specific target price recommendations by analyzing all key metrics that determine price sensitivity:
- Industry
- Customer annual item spend
- Purchase frequency
- Price point
Because of our proven approach, combined with our comprehensive maintenance and support service, Profit2’s clients enjoy a permanent margin annuity. Even during the 2009 recession, our clients maintained and grew their margin.
Understand the state of your current pricing – While no two distributors are exactly the same, Profit2 has found there are some pricing problems that seem universal to all. In our work with many distributors from many industries, we find that:
- On average, distributors only make 5 points more than average margin on incidentals
- System margin is lowered 50% of the time at order entry
- Customers representing 75+% of sales get “best price”
- On average, 60% of distributor pricing records are unnecessary or counterproductive
Pricing is a process, not a one-time project – This concept is fundamental to Profit2’s methodology. Our service takes a holistic approach to pricing, including:
- Executive coaching and approval
- Sales person training, engagement and buy-in
- Monthly program results
- Customer reaction tracking
- Ongoing pricing maintenance
To learn more about the Profit2 Methodology, read these other articles:
Case Study – Play Defense First
Case Study – Give Sales the Final Say
The pricing experts at Profit2 help manufacturing and distribution companies improve margins and increase profits. For help with pricing strategies, contact us today.
