Blog: Strategic Pricing Newsletter - August 2014 | Strategic Pricing Associates (SPA)

Lately distributors are reporting a new flurry of price increases from their supply-partners. Each iteration requires a decision. Do we risk rocking the boat and pass the price increase on to the customer? Or, do we hold the customer price and absorb a meager couple of percent hit to our margin? Whether you realize it or not this decision is a pivotal moment in profitability.

For just a moment let’s think about the decision to absorb the price increase. First, it requires no action of the seller; do nothing, margin drops a just a couple of bucks and the salesperson goes on with routine sales activity. Further, absorbing the increase maintains the status quo. The purchasing folks aren’t riled. Nobody questions past performance. And, the competition is held at bay. But, just below the surface, bad things happen.

Distribution is a 2-4 percent net income business. Absorbing just a small price increase negates a portion of your hard won profitability. It’s not just about gross margin, “holding the price line” at a customer is akin to handing over a slice of shareholder equity. Let me state this harshly for effect: your company is subsidizing the customer. Absorbing a vendor’s 2 percent increase, if done pervasively, reduces operating profit by 50 percent for the average distributor. Adding insult to injury, a salesperson compensated via GM-based commission is still rewarded (though slightly less) for a transaction that reduced his company’s profits. SPA’s experience with hundreds of clients shows that, far from being a rare event, absorbing vendor price increases is a major drain on profitability for most organizations.

How does one come to grips with the practice? By establishing a high-quality pricing process based on tools, metrics, and incentives. Salespeople must be trained to understand the real value their company provides, and the tools to manage pricing effectively. Measuring and incenting the effectiveness of pricing decision-makers is crucial. And, everybody in the organization has to understand the financial impact of price cutting.

Strategic Pricing Associates has helped over 400 distributors build a profit-boosting pricing process. Our clients have gone on record with statements like, “SPA is the best investment in distribution.” We at SPA would love to talk about how you could join the ranks of progressive distributors enjoying higher gross margins and more robust bottom lines. We can help you drive greater effectiveness at capturing vendor increases while sharpening your competitive position.

The following are recent articles, case studies, upcoming strategic pricing events, and highlights from our recent seminars that will help you on your way to achieving pricing excellence in your organization.

Recent Articles

Inside SPA - An Interview with Brad Mack

Gain valuable pricing process insights from SPA’s Implementation Leader, Brad Mack, a distribution industry veteran who knows the business needs of a distributor. Brad has leveraged his project management and process building skill-set to help hundreds of distribution businesses improve their pricing function.

Are We Crazy or What? 2014 Pricing Strategy

Now is the time for distributors to put some discipline into their pricing process.If you don’t have a scientifically developed and well defined pricing process, you need one. The process you select should feature not only analytics, but documentation, training and ongoing metrics.

Are You a Discount Shop?

Read our article about the keys to not being pressured into using discounting for all customers to appease your price-sensitive ones.

Strategic Pricing Tools Unlock Significant Hidden Profits

Are you interested to learn about the Strategic Pricing approach to increasing margins and the strategy that can lead to pricing excellence? Are you new on the journey to pricing excellence and need more information on how to leverage science-based tools to increase margins significantly?

Case Studies

IEC Supply - Pricing Process and the Specialty Distributor

After considering a number of options, IEC Supply selected Strategic Pricing Associates based on what they considered to be one of the smoothest implementation processes on the market. In just slightly over 90 days from signing the initial agreement, SPA came live with the IEC organization.

In distribution, the most innovative companies are quite often the best connected. They share best practices with a cadre of others. They build de facto cartels for exploring new concepts. Read how Livingston & Haven literally radiates the attitude of networking, innovation and teamwork and how it lead to implementing strategic pricing processes and tools that improved their margins.

Upcoming Events

August 19

Learn How Strategic Pricing Tools Can Help You Improve Sales Reps’ Confidence in Prices

Register to attend our webcast that starts at 2:00 PM EST where SPA Client Livingston & Haven will share their journey to pricing excellence and how they are leveraging science-based strategic pricing tools to increase prices and margins without losing sales. Bob Decker, Vice-President of Product & Technology, will discuss their change management lessons learned, benefits realized by implementing strategic pricing, and their success in getting the sales team to focus on selling value and increasing their confidence in the prices they present to clients. To help maximize profits, they turned to SPA to implement a proven strategic pricing initiative founded on SPA’s powerful pricing analytics tools. During this 60-minute webcast, they will share their experiences and advice that will provide you with a wealth of practical knowledge!

Click here to register

September 11

Learn How Strategic Pricing Tools Can Help You Identify and Capture Available Margin Premiums

Register to attend our webcast that starts at 2:00 PM EST where an SPA Client will share their journey to pricing excellence and how they are leveraging science-based strategic pricing tools to increase prices and margins without losing sales. During this 60-minute webcast, they will share their experiences and advice that will provide you with a wealth of practical knowledge!SPA’s Dave Lienert will also discuss how our solutions, which leverage experience from working with hundreds of companies to drive 2-4 margin point gains on affected revenue with minimal customer pushback, can help your company.

Click here to register

September 17-19

SPA will be participating in theEclipse User Group Conference in Atlanta, GA.

September 21-23

SPA will be participating in the Prophet 21 User Group Connect 2014 Conference in Dallas, TX.

Event Highlights

June 6

SPA Mastering Strategic Pricing in a New Economy Seminar in Chicago, IL

We have compiled highlights and data points shared by distribution and manufacturing leaders as well as industry experts for those of you that were not able to attend this informative event.

The event focused on strategic topics of importance to the owners, CEOs, CFOs, and general managers of distribution and manufacturing companies. Experts addressed the topics essential to accelerating the customer value proposition, competitive positioning and market value of any distribution or manufacturing business. Their presentations addressed the strategic, analytical, process and cultural issues that are fundamental to maximizing shareholder value and on the high-level, strategic and structural issues that are easily neglected in the hustle and bustle of daily business demands.

Attendees learned best-practice strategies and tactics to:

We have compiled highlights, comments, and data points shared by distribution and manufacturing leaders as well as industry experts for those of you that were not able to attend this informative event. The no cost sessions are focused on distribution and manufacturing leaders’ concerns and conducted in a way that encourages networking. If you haven’t been to one, we encourage you to do so.

Normally, the catch phrase is, “What happens in Vegas stays in Vegas.” But this time, we thought we would share a few words of wisdom that were shared during one of the panel discussions at the event. The panel consisted of executives from four high profile wholesalers representing the Electrical, HVAC, and Plumbing Supply industry.

We also share some key insights for you to think about that were shared by Tom Gale, President of Gale Media and Publisher of Modern Distribution Management magazine, who shared data from the latest MDM/NetSuite Wholesale Distribution Outlook Report. According to the survey respondents nearly 66% of the Distributors surveyed are optimistic about the coming year. And, they are investing in technology. The investments will rev up your own thoughts on this whole growth thing.

You can sign in or click here to register on our website to view our library of past webinars which covers a variety of strategic pricing topics.

About SPA

SPA is the leading provider of pricing analytics to complex companies of all types: manufacturing, distribution, equipment, services, and software/technology products. Since 1993, we’ve built a strong platform of proprietary analytics to quickly and efficiently help companies convert their own invoice data into pricing architectures that maximize their pricing performance and competitive position. Our typical client applies our pricing architecture and improves profitability by two to four percent of sales: $2 to $4 million per $100 million of affected revenue. The benefits are staggering; and they are typically accomplished in less than 90 days.

SPA Clients include over 200 manufacturing companies including Parker Hannifin, Rockwell,GE, Exxon Mobil, Caterpillar as well as over 400 distributors including Harry Cooper Supply Company, Industrial Distribution Group, AH Harris, and ThermoFisher Scientific. Click here to read SPA Client Testimonials.

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