How do you set your distribution product prices? And, who controls those pricing levels?
Does your business simply look at your product cost basis and then add your percent margin goal to your costs to determine the prices you quote to your customers?
If so, you may be missing some key area’s where you can increase your prices without loosing customers or business. That means more profit for your business without incurring additional expense!
First, do not let your field sales people set prices or reduce prices in isolation from other company groups or regions. Find out what the distribution of pricing is across all of your sales reps and your multiple branches and regions. Review this data against sales goals and results. Do your best sales occur where prices are lowest or are their other factors impacting the numbers?
Second, distributors are often slow to pass along cost increases in their product pricing. Have your warehousing and transportation costs gone up? Review and restructure your pricing as often as you encounter cost increases.
Use customer segmentation to determine a strategic pricing policy.
Your pricing needs to be adjusted to how important your products and services are to your customer versus simply on their company size or the volume of your products they consume. This philosophy requires that you know what your customers need to buy, not just what products you have available to sell. Set your margins higher on slow moving items.
The philosophy of your price levels should be value based instead of volume based. This may be a significant adjustment for your sales team. They should not be compensated on increasing client sales volume, but instead on customer profitability.
When you do increase prices, it’s important to communicate those to your customers in the right way. For some tips on how to do this take a look at this original source article on Strategic Pricing from Modern Distribution Management.
It may be time to relook at your approach to pricing to increase your profits!
Connect with Socius and their Distribution 20/20 program for assistance with the analysis of your pricing data history and customer segmentation.