Client: A $100 million distributor of Heating & Air Conditioning Equipment and Supplies
This distributor is located in a market with severe economic problems:
- Housing starts are down 50% from their peak.
- Equipment sales declined more than 50% in one year.
Margin on incidental sales increased 5+ points, increasing overall gross profit by $750,000 a year.
This margin increase was gained with little to no customer notice.
Company leaders recognized that the economic downturn would continue and place pressure on financial results for sometime to come. In their search for options, the company arranged for Profit2 to conduct a preliminary pricing analysis.
Based on the preliminary analysis, company executives recognized that equipment margins were already above the market and provided little opportunity for additional profits. They concluded the primary opportunity was to increase margin on sales to their smallest customers and on supply sales where the extended line sale was below $500.
This client considered other providers that offered seminars or other do-it-yourself options. However, executives were convinced that they only had one chance to get it right and gain credibility for the program with their sales force.
The client and Profit2 designed a program that placed a premium on the involvement of the sales organization. This approach recognized that the most important aspect of any pricing program is to make sure the pricing is trusted by sales and utilized.
A team of sales and branch leadership was formed to guide the effort. The team set objectives and decided on a critical path for startup. All sales people were introduced to the program early in the process. The first priority was to make sure any customer-item combination that might be price sensitive was protected. The sales team reviewed and approved all pricing changes in advance.
The client gained margin despite market conditions because …
- The “users” of the pricing had been involved throughout the process
- As a result 95+% of the new pricing was utilized
- Any item purchased in volume or frequently was left untouched
- Other “commoditized” items were priced conservatively
- Sales people were kept focused on the program
- Profit2 reporting enable executives to safeguard sales while building margin