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At this week's Grainger show in Orlando, FL, CEO D.G. Macpherson expanded on his recent comments that the company was seeing "benefits" from its pricing changes as he doubled down on the notion that the move is helping Grainger bolster three customer segments.
"We've seen benefits in a number of areas," Macpherson told MDM when asked specifically about pricing. "One is existing customers buying more – that's been sort of an immediate response. Another is lapsed customers – people who knew Grainger but had stopped buying. We're getting a lot of them coming back. We're starting to get some customer acquisition, so I would say all things mid-size have been a pretty significant benefit, an immediate benefit."
The third segment has been increased spend from large customers. "For them, the benefit will be in the tail (spend) because they don't buy frequently. They have more competitive prices now, so they're more likely to buy more of what they buy from us and we're starting to see some shift from that, which is good." And for non-contract large customers, "the new pricing program has really helped get some traction there," Macpherson added.
When asked about losing tail spend among customers to players such as Amazon, Macpherson chalked that up to Grainger's own previous missteps rather than outside threats taking share.
"It was really us, it wasn't necessarily Amazon," he said. "It was kind of everybody who was taking our share, we think it's our share now. So, it's not one competitor, but certainly we wanted to make sure we captured that part of the business. Our business is set up to serve that really better than anybody. We should have that business and so we had priced ourselves out of the market."
Grainger's 2017 sales increased 2.8 percent, and Macpherson said on the earnings call with analysts a couple of weeks ago that the pricing change deserved more credit than demand tailwinds.
In our view, Macpherson has made some gutsy and overdue decisions – Grainger had priced itself into a corner and risked accelerating long-term market share erosion due to its increasingly non-competitive margins. Macpherson’s decision to put through one major price cut – and soon after he was named CEO – shows some Jeff Bezos-like long-term thinking.
However, Grainger still faces an unprecedented threat in Amazon Business. The online giant is going after “long tail” purchases – traditionally Grainger’s strongest market – from all customers, not just small businesses. For an overview of Amazon Business’ strategy, including its potential to dominate the e-procurement market, download our free MDM special report, Your Amazon Business Playbook.
For deeper coverage of Grainger's pricing changes, click to purchase or download our special report, Grainger’s Web Pricing Initiative, written by Lee Nyari.