More and more distributors have been talking to us about the impact of tariffs on their business. There seems to be a lot of anxiety in wholesale distribution, particularly as wholesale distributors are among the first to be impacted. Depending on the lines of business you serve and the volume of trade affected by tariffs in your industry, tariffs will undoubtedly force you to reevaluate your pricing and profitability. This is true of any economic factor impacting the costs of your business, whether tariffs, oil prices, freight increases and more. The most common response is to try to pass price changes along to customers; however, do you know what the impact of those price changes will be on your business? Will you be successful in recapturing profit or will you lose sales volume? One thing is certain: data-driven analysis of your pricing is more critical than ever if you want to deal with economic changes effectively.
Wholesale Distributors Facing Uncertainty
Until recently, trade agreements were relatively stable and predictable. Changes in trade agreements cause an unusual amount of fear within distribution for a variety of factors.
Distributors operate on relatively small margins. While all companies succeed with cost-effective sourcing and optimized pricing, the razor-thin margins in distribution leave no room for error. The uncertainty of a volatile trading environment has left some distributors dreading the next trade headline.
While finding economically attractive international product sources is more difficult with tariffs, distributors who sell to emerging markets are also affected by tariffs. With eroded protections around intellectual property, environmental regulations and labor costs, it becomes more difficult for US-based distributors to compete in emerging markets.
Of course, this causes a considerable ripple in the rest of the economy as well. According to the National Association of Wholesalers (NAW), distribution accounts for 29% of GDP and is now facing declining growth rates, especially in industries related to durable goods.
Turning Tariffs and Other Cost Increases into an Opportunity
Fortunately there is a clear path to turning tariffs into an advantage and profit opportunity for you business. epaCUBE users have access to data-driven pricing decisions that can maintain your profitability, find new opportunities for profit, drive long-term pricing advantages and maintain your share of wallet. Here are the basic set of profit plays epaCUBE users are planning right now.
1. Respond to tariffs with real data-driven pricing decisions. Increased costs, decreasing growth and competitive difficulties cause fear and fear almost always causes bad pricing decisions. You’re making pricing decisions every day, but without data-driven analysis of pricing and profitability, you run the risk of overreacting to market changes. Simply responding to competitive price changes without analyzing the actual behavior of your customers segments is simply a race to the bottom. Distributors with data-driven price optimization have the best chance to maintain their profitability.
2. Use tariffs as an opportunity to correct other pricing. Your customers are hearing about price increases from your competitors. They already know you are going to need to correct your pricing as well. Unfortunately, many distributors operating without price optimization make gross changes across entire product lines without a real understanding of your profitability. With optimized pricing you can use tariffs as the reason to correct (usually raise) pricing across your entire business.
3. Hold onto profit long term. When economic environment changes as it always does, use the opportunity to keep more of your profit as prices drop again. Once your customers get used to a price level, it can take some time for the market to respond when costs go down again. With epaCUBE, you can carefully analyze your pricing to know exactly when and how to raise or lower pricing moving forward. That means that eventually, those painful price increases from tariffs can become a longer-term profit source with careful analysis.
4. Understand your share of wallet. Once you get your customer segmentation tuned in, you can understand which customers are most likely to buy related products. This allows you to expand your business with key customers even as your competitors lose profit and market share.