A weak pricing architecture can cost a distributor more than 25 percent of its profit potential, according to Brent Grover, citing a 2011 Global Pricing Study this week at the distribution-focused Advanced Profit Improvement Conference. While many distributors would love to blame pricing problems on factors out of their control, Grover encourages leaders to think twice before passing the pricing buck.
Nearly 1 in 2 companies think they’re in a price war, and 83 percent of those blame competitors for starting the war, according to the same pricing study. Distributors’ own sales reps, though, may often be the instigators as they price products lower and lower to keep and win business, Grover said.
Distributors also tend to point fingers at their own products, which they say are commodities, when trying to justify problematic pricing. Grover asks: “Who is not in a commodity business?” A distributor may occasionally carry an exclusive line that enjoys high demand and high pricing, but that doesn’t happen very often. “Most of us don’t have anything that’s proprietary,” Grover said.
Insufficient monitoring, lack of pricing know-how and poor strategies, Grover said, are the most common culprits of unprofitable pricing. These elements, unlike low competitor pricing or low product potential, are within distributors’ control to change.
Grover is the author of Strategic Pricing for Distributors: Tools and Rules for Building Higher Margins from the National Association of Wholesaler-Distributors.
He is also the author of The Little Black Book of Strategic Planning for Distributors, available from MDM.