Online giants continue to disrupt distribution, making effective pricing strategy more important than ever. In the recent MDM Webcast, “What Distributors Need to Know about Pricing Disruption,” Brent Grover, managing partner of Evergreen Consulting LLC, discussed how distributors can improve their approach to pricing in order to survive disruption.
As digital competitors continue to disrupt traditional pricing models, pricing strategy is getting more attention from many distributors. While the simple answer to pricing disruption is to introduce an aggressive strategy, implementation may need to be more nuanced than expected. Pricing is often an under-managed and reactive business activity, but it must become a core competency and a larger strategic initiative to stay competitive.
In the recent MDM Webcast, “What Distributors Need to Know about Pricing Disruption,” Brent Grover, managing partner of Evergreen Consulting LLC, posed three questions to assess how well a distributor is positioned to weather pricing disruption.
1. Do you communicate your pricing strategy?
While staying competitive and profitable amid disruption is often a numbers game, pricing strategy can be as much about changing the culture of the sales team as it is about analytics. Create a process to communicate changes to salespeople, as well as a process to win them over in order to successfully implement a new pricing strategy, Grover says.
When asked “What do you think our sales strategy is?” most distributors would hope a salesperson’s answer would center on being value driven and relationship driven, and then pricing according to customer needs. But, according to Grover, that’s not necessarily the case.
Instead, many salespeople will note that they don’t know the company’s pricing strategy, but they’ll have their own approach – often focused on limiting or undercutting the competition. The problem is they make pricing decisions without any idea what those competitors are charging.
“I would like to think that they would find it liberating to be given market-driven pricing, which they’ve never had before because no distributor I know of has been capable of gathering, organizing and disseminating all of the market pricing that the salespeople gather or think they have gathered from customers out in the field,” Grover says.
Information sharing is key to changing the culture and attitudes of a sales team and implementing a new pricing strategy.
2. What’s your service strategy?
Most distributors can’t compete solely on product pricing with online giants, but competing with disrupters on service takes its own sort of creativity. For example, Walmart is actively battling Amazon for e-commerce sales in a less than conventional way.
“(Walmart is) offering their customers the opportunity to pick up non-store items … online-only items, at the store, you get a discount of $7 to $50, which is thought to be revenue neutral to Walmart,” Grover says.
Larger distributors sometimes face shortcomings with customer and technical support, which provides an opportunity for smaller companies to differentiate themselves by meeting service needs. In the case of Walmart, the new service benefits the customer who is willing to do a little extra leg work.
“They’re just passing the savings onto a customer who is willing to park their car, walk into the store, find the pickup tower and pick up their purchase. And they’re actually even testing curbside pickup,” he says.
3. What will keep the barbarians at the gate from crossing your moat?
Knowing how your customers’ needs are changing can help inform your new pricing strategy and keep you a step ahead of pricing disruption. Some things may just need a perception check, including selling. Selling is becoming more about the product than the process of how people shop, according to Grover.
“(Amazon is) adding more sellers to enable them to have the world’s greatest selection and be the ‘everything store,’ coming back around to customer experience … They’re continually working on the lower cost structure and lowering prices, which contribute to the customer experience,” he says.
While shifting perceptions about selling may be a good way to combat the inevitable pricing changes brought on by a volatile distribution sector, it will take thinking outside the box in all aspects of distribution if you want to stay competitive.
“At this juncture for distributors I would argue that what we have going on is a threat of substitute ways of getting orders, substitute ways of communicating with customers, substitute ways of doing business. Not just of product,” Grover says.
Access the full webcast at https://www.mdm.com/events/115-what-distributors-need-to-know-about-pricing-disruption.