In the first part of our blog series on this topic, we explored in detail five critical price management-related questions facing traditional distributors getting into e-commerce. While the traditional approach to pricing might not be as effective online, there are some proven strategies that you can adopt to effectively support both your traditional business and your web-based model.
Strategy #1: Upgrade to a modern price structure that allows for market-responsive price management across all channels.
Ask yourself if your current pricing practices are hampering your ability to be flexible and responsive to changing conditions in different channels and markets. For example, if an item-specific list/street price needs to be updated, does it require you to update the item’s price for all of your individual customers, either to keep it at an exception price or to update it, as well?
If you find issues, look for different ways to price that do not result in unnecessary work and complication. Modern price structures can provide great flexibility, and they can be quite effective when selling across multiple channels. In our experience, upgrading price structures can do more to unlock profitability than obsessing about finding the optimal price point in a suboptimal structure. Some of our clients have also found it possible to implement tweaks to their price structure in ways that remain relatively seamless to the established customer base but can greatly improve flexibility in price management.
There are proven methodologies that can be developed and deployed to transition a business to a modern, flexible price structure – a detailed review of which is beyond our scope here. That said, the process generally involves reviewing your core pricing objectives and challenges, and considering best practices to updating current-state pricing processes, including approaches that minimize disruption in the transition process.
Strategy #2: Use a price matrix that can be understood, is seen as fair and is generally market-aligned.
If your displayed list/street prices are not market-aligned, then the increased level of price transparency in an online environment is likely to expose these shortcomings and cause you to lose real business – or generate additional work for those involved in price management. Even the most tenured and knowledgeable sales reps may grow frustrated with the constant flow of price management issues, which may be left for them to deal with as stewards of key customer relationships.
In these situations, management sometimes believes that their sales force will ignore or resist analytically-derived pricing recommendations. This may be true in many cases – particularly in distribution where reps with deep industry backgrounds, decades of experience in their specific markets and close knowledge of their major customers feel they know better than any mathematical model.
Even then, investing in analytics is not likely to be a wasted effort. It is often possible to implement more customized solutions that rely less on industry-standard pricing templates and more on the collective judgment of expert sales reps themselves – while also using sophisticated mathematical tools to leverage historical datasets to gauge price sensitivities. If such price structures are developed, and if they are properly maintained so they remain market-aligned, price overrides (and price objections) can become very rare, and the need for them may turn out to be only temporary in nature (i.e., until the next round of price update comes).
Without at least a table stakes level of analytical capabilities to manage highly complex pricing environments associated with distribution, it might be impossible to effectively manage pricing in e-commerce.
Strategy #3: Take control of, manage and leverage price transparency/safeguard digital price lists as organizational assets.
Customer-specific price lists should remain key organizational assets, even in the digital world. To test how effectively your price lists are being safeguarded, conduct competitive research on yourself. See how hard it is to collect price intelligence on your own business. (You may want to involve some folks who are knowledgeable about web-crawlers/spiders in these discussions.) Analyze the findings with a focus on what balance you may want to strike in what information to make available and how.
On the one hand, you likely want to be seen as a distributor that is easy to do business with – which means not making it too hard for your customers to get the information they need and want. On the other hand, if you make all information fully, readily, centrally and digitally available to everyone, some folks may take advantage of the situation in ways that may not necessarily benefit your business.
Here are some questions to ask yourself:
- What level of detailed information should you display on the public portion of your website (prices, stock levels, freight (if any), manufacturer SKU, etc.), vs. information to make available only to your established (authenticated/registered) customers?
- At what point in the funnel should you display actual pricing information (customer-specific or list)?
- Is your price structure so simplistic, and so infrequently updated, that it can easily be reverse engineered? Your competition may conduct competitive price monitoring and may be taking actions based on the information they collect on you. Your customers may also engage in competitive price shopping, particularly on certain commodity items. All these activities may become significantly more challenging if your business uses more sophisticated price structures. For example, price structures with rebates, promotions, more complex discount schedules, etc., are generally harder to reverse engineer, particularly if price updates are relatively frequent.
Strategy #4: Leverage your e-commerce data to improve your pricing and general business decisions.
E-commerce operations also generate data that can be mined for information that may be useful in making key business decisions. Here are some potential opportunities to leverage your e-commerce data for insights:
- Monitor how frequently item-specific pricing information is accessed on the website, and compare that information to the items’ sales volumes. Frequent web-based pricing inquiries may represent a general level of interest in specific items, which (in theory) should translate into sales volume. You may also think about using these item-specific conversion rates to benchmark similar items against each other, and research why some items may be underperforming in converting pricing inquiries on your website into actual sales volumes.
- Monitor which authenticated users regularly access different portions of your website (particularly pricing information), and compare your findings to these users’ actual purchase patterns. Even if you can’t (or choose not to) directly ask these users about their online behaviors, this type of information may be useful in guiding how you manage your relationships with them.
- Review any unexplained gaps between your e-commerce and traditional business channels, in terms of the relative sales and margin performance of your key products. If one channel greatly outperforms the other, what is happening in the underperforming channel? Are there any issues concerning price or product presentation?
Lee Nyari is managing partner of The Innovative Pricing Group, a consultancy offering strategic price management solutions for distributors. Lee is a seasoned distribution pricing executive with almost 20 years of experience leading strategic pricing projects. His deep distribution industry pricing background is coupled with engagement leadership roles at top-tier strategy consulting firms. Lee is a certified pricing professional, a certified public accountant, and he holds a full-time MBA in marketing strategy from Kellogg School of Management.