It’s the one hot topic in business that never seems to go away… PRICING.
If you haven’t addressed your company’s pricing plan in a while, Dave Roller says you’re leaving good money on the table. As president of Profit2, Dave has built his career helping distributors optimize their strategy – even against e-conn’s biggest names.
Though this conversion was recorded in 2020, it’s as relevant as ever today. Jason and Dave break down about the art and science of pricing as well as overcoming pricing challenges – even in challenging times.
And it’s no wonder distributors often avoid picking through their pricing. “There are very few businesses that have the scale [or] the challenge we have.” To prove his point, Dave contrasts a restaurant’s few hundred pricing decisions or a manufacturer’s several thousand items against Profit2’s average distributor client who makes upwards of 300,000 pricing decisions annually.
For many family-owned wholesalers, even those with shaky margins, the task seems too overwhelming to bother. Much of the pushback is steeped in long-standing, first-generation traditions and ancient client relationships. But Dave sees a tidal shift happening as second- and third-generations take over decision-making duties. “When we start talking to the younger executives in distribution…there’s a little bit different sensibility and a greater comfort with the concept of data mining and utilization.”
That robust ERP data presents opportunities for distributors to sort out their chaotic pricing methodology and make solid gains. Dave points to client stratification as an example. “You can use transaction data and a few other metrics to be able to enrich your customer stratification for pricing that allows you to differentiate what you charge, one customer versus another.” Segmenting customers into groups based on various factors (such as profitability, revenue, loyalty, and cost-to-serve) minimizes the rote renewal of underperforming contracts.
As for the importance of maintaining customer rapport, Dave says, “I think we all value the relationship, sure. but you have to also step back and take the bigger picture.”
Ultimately, Profit2 sees their role as helping distributors utilize data tools to break out of the cookie cutter pricing approach. A more potent pricing model – one that fits seamlessly into a company’s culture – ultimately leads to better customer service. “That creates a profit annuity over time. It stays around. It keeps bringing you more over time.” And that’s a win-win on both sides of the sales counter.
QUOTES:
“In my view, one of the most important assets any distributor owns is their transaction data and it could make them a lot more money.”
“I think it’s important that distributors have a pricing system that fits their culture and the way they want to price so it sticks. It’s sustainable.”
“My suggestion is today, get a list of your fixed or net price records and convert them to a margin or markup or discount basis…It’ll be like writing yourself a check.”
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Distribution Talk is produced by The Distribution Team, a consulting services firm dedicated to helping wholesale distribution clients remove barriers to profitability, generate wealth, and achieve personal goals.
This episode was edited by The Creative Impostor Studios.
Special thanks to our sponsors for this episode: INxSQL Distribution Software, an integrated distribution ERP software designed for the wholesale and distribution industry; and Profit2, helping distributors charge the right price.
