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Three Reasons Why Distributor Pricing Can Be 'Chaotic'

Three Reasons Why Distributor Pricing Can Be 'Chaotic'

November 22, 2010

"Customers are possibly willing to pay more – they just weren't asked to." That's the secret Evergreen Consulting's Brent Grover told attendees at the North American Building Material Distribution Association and North American Association of Floor Covering Distributors annual meeting last week. Price should reflect the true market value of a product or service, and not just the cost of that item to the distributor, he said.

In an interview with MDM last year, Grover said that he found that less than 4 percent of distributors he interviewed for his book, "Strategic Pricing for Distributors," were totally satisfied with their pricing management process, and 29 percent were mostly satisfied. Those that were satisfied to some degree said that they grant less authority to inside and outside sales reps, are more likely to employ customer segmentation and pricing sensitivity analyses, and interestingly, tended to be smaller.

In his presentation last week, Grover gave the following reasons pricing can be chaotic:

  1. The sales team has pricing autonomy and often is not aware of true market pricing.
  2. The distributor's information systems are underutilized. "Strategic pricing provides powerful information, but it doesn't not 'automatically' appear in the distributor's pricing files," he told MDM last year. "Part of the implementation job is rethinking the pricing process, and exploring ways to get more out of the ERP system's pricing module."
  3. No one person is responsible or accountable for pricing. Grover said that distributors should tap a qualified manager to take on responsibility for pricing as all or part of his job description.

Read: Conditions Ripe for Better Pricing, in which Grover talks more in detail on the above topics.

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