Is your pricing strategy to optimize margins, maximize sales or getting more profit from existing accounts? Do you have a pricing strategy? According to the Simon-Kucher research, nearly 50% of companies think they are in pricing war. Over 80% of those companies believe someone else started it.
Evergreen Consulting’s work, exclusively with distributors, proves a powerful positive correlation between management influence over pricing and profits. Whale curves from our clients’ data illustrate that optimizing profits from existing accounts is a shorter and more reliable path to profits than chasing new business.
Although distributors care very much about their sales reps and suppliers, our data shows that – except in rare cases – money-losing transactions and customers are not a viable result, even when they help a rep (or supplier) make their numbers.
How do the research findings compare to your company’s approach to pricing? Where are you in terms of distributor pricing maturity?
Pricing Optimization for Distributors
Now that pricing analytics are becoming universally available to distributors, price optimization is no longer a profit effectiveness luxury. It is a must-have no matter what legacy ERP system you use. Market-driven pricing and healthy profits benefit all: customers, sales reps, support staff, managers, suppliers and of course owners.
The pricing optimization techniques that create sometimes mystifying differences in the cost of hotels and airline tickets are being used by distributors to redefine their profit results. In the distributor environment, the vast array of products and variations in cost to serve require the price optimization on an enterprise scale. That’s why we developed:
“Price optimization is the use of mathematical analysis by a company to determine how customers will respond to different prices for its products and services … to determine the prices that the company determines will best meet its objectives such as maximizing operating profit. The data used in price optimization includes operating costs, inventories and historic prices and sales. Price optimization practice has been implemented in industries including retail, banking, airlines, casinos, hotels, car rental, cruise lines and insurance industries.”Wikipedia
SMART Pricing is beneficial to key sales KPIs such as increase in average order size, meeting sales targets and shortening the average selling cycle.
A solid pricing architecture for distributors combines automated discount flexibility for routine pricing with human intervention, by exception. Pricing “guardrails” empower reps to make pricing decisions on their own, without having to slow down the buying process by having check with their sales manager at every intersection.
In an era when long-established practices about light-handed sales management are changing rapidly, new technologies and processes necessary to support them start to look less like nice-to-haves, and more as necessary ingredients for successful sales effectiveness strategies.
SMART Pricing as an ongoing business process not a one-time project for our clients. The SMART Profits program is a low-cost annual refresh of client pricing data analysis as well as tools for ongoing margin monitoring.
To be successful, pricing optimization must be both sustainable and serve as a platform for future margin improvements.
Evergreen consultants work with clients to identify emerging opportunities for margin enhancement, and we are available to provide management and sales training when needed.
Pricing Process Design & Management
Evergreen consultants have extensive experience with the pricing modules included in most popular distributor ERP systems. The majority of ERP pricing modules have more than adequate functionality to implement SMART Pricing.
Our staff assists clients with formatting and downloading data from their ERP system to us, and with uploading our pricing recommendations into the ERP system.
Advanced, Cloud-Based Pricing & CPA
- Online Pricing Reporting System
- Online Customer Profitability Analysis and Cost to Serve System
- Real-time Pricing Decision and Selling Tool for Mobile Devices
- Sales Compensation Plan Design
Evergreen Consulting’s top-down approach to CPA for distributors, SMART CPA, is a systematic and consistent methodology for allocating and assigning costs. The algorithms we use are based on cost behaviors and our experience working with distributors of all types and sizes. Our principles call for a customized approach for each project. We account for all significant variables (sales cost, freight, vending machines, customer inventory, cost of getting paid) for each customer. Different methods are used for each order type (warehouse, direct, will call, counter sale, service).
STRATEGIC PLANNING (ONE-PAGE PLANNING)
Evergreen’s holistic approach to strategic pricing, SMART Pricing and customer profitability, SMART CPA, often leads to serious conversations with clients about strategic planning. What is the leader’s vision for what the business will look like when his or her career is complete? What is the the “big hairy audacious goal” BHAG and growth trajectory for the long term? What are the Key Performance Objectives (KPIs) for 3 years from now? Are the “right people on the bus and in the right seats”?
Rewarding the Sales Force
Strategic pricing is as much about change management as it is about pricing analytics. Winning the support of the sales team is crucial to the success of an effort to improve business processes, especially when that change affects the way the reps do pricing and manage their customers.