A solid pricing management strategy going into 2024 may be more critical than ever to the health of distribution businesses as some industrial markets begin to soften.
James Dorn, President and CEO of Dorn Group, joined MDM CEO Tom Gale in the latest QuickTake podcast episode to discuss how using controls to prevent price lowering may be key to winning market share during times of softening demand.
In order to maintain margins and profitability as the distribution industry faces more pressure on pricing, it’s essential to provide the right tools that enable a sales team to defend prices, Dorn said. Right now, it could be easy to start losing ground as sales teams naturally begin to be leery about pushing too hard.
“It’s all about playing offense to capture more share, but there’s a bit of defense that has to be played here too from distributors to make sure they can maintain the customers that they have and the share that they have with them,” Dorn says.
Dorn suggests three ways distributors can grow top-line revenue and margin in challenging market conditions:
1. Customer Segmentation
Dorn suggests setting pricing controls by first identifying pricing gaps between customers. Generally, he says, customers fall into two segments: those that are being overpriced and those that are being underpriced.
“You want to figure out which ones fall into those two buckets and then you want to adjust your price accordingly,” he says.
2. Holistic Pricing
Identify not just customer size, but customer potential. Dorn suggests using data to better understand what the market demand is for both that customer and the product.
“This could really help you identify and adjust your strategies, and working with individual customers based on not just what they’re purchasing from you today, but also what they could be purchasing from you,” Dorn explains. “Your best distribution pricing departments are doing this at a high level of effectiveness. They’ve become really, really good at this. And that’s how they ultimately steal share, regardless of market conditions. They’re growing above market by diving deep into this level data, and making sure their team are effectively executing on this.”
3. Product Segmentation
Distributors can layer product segmentation data over customer segmentation data. By segmenting products into high-moving items to slower-moving items, distributors are then able to match high-moving items with the largest customers, or those customers with the most potential.
“Catering and customizing your product offering to high-moving to slow-moving items to a customer and adjust your margins accordingly, that’s when you get this both science and art of being able to influence top-line growth and margin growth,” Dorn says.
Listen to the episode — which dives deeper into how distributors can use data to build the foundation for effective pricing control — via the audio player above. You can find MDM’s full podcast library here.
Don’t miss Dorn and Gale at the upcoming 2023 Data Analytics Summit, which will be held virtually on Dec. 6.