Is the Price Right? How Distributors Use Data to Beat the Competition
Using the Untapped Resource of “Data” to Out-compete by Out-pricing Wholesale Distributor Competition
Thanks to the indomitable progress of technology, Wholesale Distributors have all sorts of data at their fingertips covering everything from costs and volume of sales to frequency and timing to various customers or geographic regions. Technology allows a Wholesale Distributor to capture an endless amount of data, going all the way down to the granular, item-by-item, level. Much of this raw data may seem like noise – useless data that just takes up space. However, this data may represent an untapped gold mine for those willing to plumb its depths and aggregate it into usable information, particularly for pricing practices.
The Opportunity and the Challenge
Getting pricing right makes a big, big difference. Getting an extra point of margin drops straight to the bottom line. But you don’t want to overdo it and drive business away. Pricing is notorious for gaining margin in the short term (people don’t notice it right away), but could drive customers away long-term. So how can you get it just right?
The sales team has a big role in setting pricing. They have overrides and control the relationships with the customers. The sales team may push back and not properly implement new pricing projects. So getting everyone on board before making any decision is critical.
So what data does a mindful Wholesale Distributor need to capture to help take their pricing practices to the next level?
Step 1: Knowing where your prices come from is critical. Set up systems for capturing and aggregating the following information. Where does the price come from?
- Job quotes and bids
- Customer contracts
- Negotiated with suppliers
- Commodity driven
- System generated (e.g. matrix)
Step 2: Focus on the right things. Create a tracking system that tracks margin on sales driven by each category above. Determine which processes generate success for individual sales and for repeat customers.
- Maximize those processes.
Step 3: Stop stupid stuff.
- You don’t need the world’s fanciest algorithm, you just need to stop doing the obvious wrong things. For example: Beware the one-way ratchet of the “last price paid,” where a customer asks for lower price, the sales representative caves, and the lower price becomes the new “expected” price ceiling. This is the opposite of what a digital distributor should do. Don’t let the customer use the intimacy and relationship against you because you don’t have the market and system data to understand the landscape. You know how other customers are behaving and what the proper price should be.
Step 4: Use your power. You have insight and information at your fingertips. Use what you already know:
- Data driven decisions – review what works, based on the data you collect, and amplify that success.
- Customer insight – you know your customer best: who makes the decisions? What do their customers want/need?
- Transaction history – you have a history of data, not just price, but the entire context of the deal, special exceptions, timing, etc.
- Use these to investigate:
- Patterns of behavior
- Root cause analysis – always be asking “Why?”
- Market pricing data
Proper pricing practices are more of an art than a science, but they can be a very lucrative art. It is worth the time and energy of management to tinker and update pricing practices regularly. However, it doesn’t have to be a stab in the dark. Use the data you already have, and start capturing the data you need most.
Do you want to learn more about any of the steps above and how to leverage them within your business to gain a competitive advantage. Have a member of the Barnes Dennig Wholesale / Distribution team reach out to you to talk through your strategy, and start benefiting from the data you already have today!