The 2020 Mid-Year Economic Update_long

Commentary: Use Strategic Pricing to Boost Profitability

Does a 3 percent to 4 percent increase in margins get your attention? Tim Reynolds argues that we will be seeing more about strategic pricing. In a sense, it has to happen. Distributors have to get more strategic about pricing and managing the sales force to compete with the pressures today.


The article notes a fundamental practice at most distribution companies that consistently shaves profitability points. While management sets discounting guidelines, day-to-day pricing decisions are often in the hands of sales. Do you have any savvy customers who funnel orders to their “favorite” salesperson who they discovered consistently quotes the lowest price in your company? What does that cost?


More importantly, some larger distributors have built sophisticated tools to manage pricing more strategically, together with the activities of their sales force (Don’t expect to hear them talk about it). If you haven’t pushed customer profitability into your business yet, strategic pricing may be a path to start segmenting customers, pricing items accordingly, and restructuring sales efforts to support your strategy.


On a different note, the acquisition of cutting tool maker Iscar Metalworking Company by Berkshire Hathaway is good news! After years of news about North American manufacturing customers and ownership moving offshore, it is heartening to see Warren Buffett buy a major global industrial manufacturer. It is the first offshore acquisition by Berkshire Hathaway. For North American distributors, it repositions a strong vendor with an owner who believes in the long-term in a different light than if a private equity group regardless of nationality had become the new owner.


 


 


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