Recommended Reading: Segment Customer Pricing to Improve Profitability - Modern Distribution Management

Log In

Recommended Reading: Segment Customer Pricing to Improve Profitability

Grainger may be missing big opportunities with its pricing initiative.

When Grainger announced its web pricing initiative earlier this year, its executives made clear that it was targeting growth in the midsize, non-contracted market – the type of customer the distributor is looking to acquire. But its approach may be overly simplistic and costly, according to Lee Nyari in Grainger’s Pricing Initiative, pt 2: The Quest for Optimization.

While Grainger has seen a pick-up in volume from that target customer segment, it hasn't been enough yet to pay for the drop in gross margin from broad-based lower web prices. In June, Grainger projected a 210-basis point gross profit decline for the U.S. segment this year, and it doesn't expect to turn that around until 2019.

Grainger's web price structure appears to be "product myopic," Nyari notes, and doesn't consider how much customers in that core segment (and others) might be willing to pay for products at any given time.

"Even with limited understanding of the relevant markets that Grainger’s strategies impact, there is very good reason to suspect that demand in the non-contracted business segment may, in many cases, be all over the place, particularly when it comes to the most impacted subset of slower-moving SKUs," Nyari says.

As a result, Grainger may be missing on out significant price premium/margin for both the short and long term.

"In many cases, demand prior to the pricing initiative was high enough for customers to justify paying high list prices," Nyari writes. "If Grainger had not seen significant sales at or around list price, dropping these list prices would have been largely a non-event and doing so would not materially impact their margin rate."

To create a more optimal strategy for the short and long term, a company needs to understand its customers' motivations and willingness to pay for products and services. While extremely high list prices on a website (such as Grainger's prior to the initiative) may indeed turn off many customers on their first visit, dropping those prices significantly may undercut the profitability. It's a balancing act to find that right price point for the right customer.

Read more about the impact Grainger's web pricing initiative may continue to have on its bottom line in Grainger’s Pricing Initiative, pt 2: The Quest for Optimization.

Share this article

About the Author
Recommended Reading
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

Get the MDM Update Newsletter

Wholesale distribution news and trends delivered right to your inbox.

Sign-up for our free newsletter and get:

  • Up-to-date news in a quick-to-read format
  • Free access to webcasts, podcasts and live events
  • Exclusive whitepapers, research and reports
  • And more!


articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events

Subscribe to continue reading

MDM Premium Subscribers get:

  • Unlimited access to
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events



You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.

Join other distribution executives who use MDM Premium to optimize their business. Our insights and analysis help you enter the right new markets, turbocharge your sales and marketing efforts, identify business partners that help you scale, and stay ahead of your competitors.

Register for full access

By providing your email, you agree to receive announcements from us and our partners for our newsletter, events, surveys, and partner resources per MDM Terms & Conditions. You can withdraw consent at any time.

Learn More about Custom Reports

Request a Market Prospector Demo

  • This field is for validation purposes and should be left unchanged.