7 Pricing Mistakes Great Distributors Never Make
With relatively small gross profit percentages, distributors seem more focused on best practices in profitability than companies in other industries. Distributors are constantly seeking advice on what is working well in other companies and trying to emulate it in their own businesses. They say that imitation is the sincerest form of flattery, and distributors are downright obsequious.
Unfortunately, this strategy of copying what seems to work just doesn’t cut it when it comes to pricing. Just because a competitor offers their products at a particular price, how do you know they got it right? What went into their pricing decisions? Can you trust the feedback of your customers, or are they just trying to get a better deal? Do your sales reps know what price is needed to be competitive, or are they just tired of negotiating?
With these difficulties in mind, I thought it would be fun to look at what the best distribution companies DON’T do in their pricing strategy.
Great distributors don’t make data-free pricing decisions. Great distributors base their pricing strategy on deep analysis of various customer segments and back up that strategy with real data. They don’t make guesses based on how other distributors are pricing products or random feedback from sales reps.
Great distributors don’t use meaningless segments. So often I hear about distributors who use seemingly logical customer segments that really don’t get to the core of unique customer behavior. A lot of distributors segment by industry categories, such as residential contractors or repair organizations. Unfortunately, just because two companies fit into the same industry, it doesn’t mean their behavior or pricing concerns are at all related. Even worse, some distributors use small, medium and large as a way to categorize their customers. But just because a customer is small to you in terms of their business, they might bring you more business and actually become a large customer if you priced them correctly.
Great distributors don’t confuse their customers with pricing. Do your customers get different pricing if they call different sales reps or if they log onto your e-commerce site? Nothing causes more frustration to a customer than inconsistent pricing.
Great distributors limit their pricing overrides. When you get your pricing strategy correct, your sales reps stop overriding prices. Sales reps are more confident in the reality of your price levels so they panic less in their negotiations and they trust your matrix.
Great distributors don’t manage pricing with spreadsheets and business intelligence tools. Math and manual execution in pricing won’t drive your profits but it will drive you nuts. If you’re approaching your customers, product and pricing correctly, there is way too much to keep track of to effectively raise profits though manual processes and lengthy calculations. Even BI tools fail because setting up the analysis in an ever-changing marketplace is nearly impossible.
Great distributors have grown past high-priced pricing consultants. Consultants can get you some quick hits, but many of our own distribution clients have left their pricing consultants because the consultant took too long to give them an analysis, refused to share their black-box methodologies and didn’t understand their customer segments beyond simple categories like small, medium and large.
What Do Great Distributors Do In Pricing?
So what do great distributors do when it comes to pricing? They manage their own pricing strategies with segmentation based on real behavior and perform regular (even daily) analysis with leading tools like epaCUBE. We’d love to give you your own sneak peak into how epaCUBE users are driving profits every day in their distribution business. And if you like to share best practices, we have our own group the epaCUBE Masters Pricing Group that meets regularly to help each other with leading best practices in pricing.