Pricing is a critical discipline for every wholesale distributor. Pricing can be a very complex activity when prices have to be set by product with volume price breaks, column pricing, and catalog pricing. Pricing is also set for customers and customer groups and buying groups. As the number of SKU’s increase the difficulty in administering prices becomes even more difficult. For some companies, when manufacturers increases their products prices and pricing maintenance has to be performed it’s a multi day project.
Many distributors have difficulty maintaining gross margins as both customers and sales people can create pressure to reduce prices in the effort to close the sale. While most distributors are taking the cost of the product into consideration they are ignoring the cost to serve. Thus, some customers are buying at prices that don’t consider the cost of extensive customer service effort, special terms, expedited shipping, special handling in the warehouse and more.
Creating a plan for establishing and managing a pricing policy and following it is referred to as Strategic pricing. The information presented here will help you to understand and implement these pricing best practices. The software vendors listed below have implemented those best practices.
Building a strong foundation and structure for distributor pricing
Best practice recommendations by Brent Grover. Wholesale Distributors tend to have similar pricing related problems:
As a result, most distributors don’t have control of their pricing. In many instances pricing is “delegated” to the sales force, but little or no competitive market pricing information is available. Successful pricing requires a strong foundation and well-designed pricing structure.
- Distributors have lots of products. Most distributors carry thousands of products, and have thousands more non-stock items available.
- Distributors have lots of customers. Companies typically have thousands of active customers and many thousands more who buy something occasionally.
- Distributors have lots of transactions, many of which are small. Distributors handle thousands of orders each month, many of which have 2-3 lines and average only $200-300.
- Distributors have too many people involved on pricing. Even the most sophisticated companies have “too many cooks spoiling the soup”; they under-utilize their ERP system pricing modules and they under-manage their pricing function.