Building an effective distributor pricing strategy goes deeper than setting pricing policy and gross margin targets. You need to carefully consider how you intend to create customer value – and claim it in the market place.

A good distributor pricing strategy starts with a clear vision of what you bring to the game as a wholesaler. Approach this as a competitive pricing strategy exercise, looking beyond your distribution channel to consider customer alternatives. Look at competitors from an adjacent sales channel, manufacturers going direct, and the customer‘s own production cost (if they can make the product in house). Want to increase your profit margin? Ask how you can create more customer value in the process.

From there, we look at pricing optimization and your pricing model. This include list price, discounts policy, terms of sale, supply chain services, and credit. There are two goals to this exercise. First, understand where value is leaking from your business. Second, assess where you want to be on the customer demand curve.

If you are selling a product to a retailer, you need to consider retail price point in this exercise. The retail selling price will dictate how much margin is available for wholesale pricing – and if the margin is enough to cover supply chain costs. This is especially true for any new product, where you’re estimating the potential selling price and retail customer demand. Retail pricing also affects your total sales volume, which is required to properly size your production cost.

Finally, you need to look at how to set and enforce pricing policy with your sales force. Pricing isn’t effective unless a sales rep can execute the program.

For help putting together a plan to address these issues, reach out to us for a pricing consultation. Otherwise, check out the articles below for perspective on these issues.

Getting Run Over By a “Paid For” Truck

As a cautionary tale, we present to you a Vegas story in which a janitorial supplies distributor’s best price was crushed by a food service competitor who had already covered their cost to serve.

In your own business, where are you at risk? What kinds of competitive barriers can you throw up (product or service) to defend your market position? Playing offense, can you use this approach to take share within an account?

Because there’s no guarantee that what happens in Vegas, stays in Vegas

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Strategic Pricing: 9 Ways To Improve Profit Margin

True Strategic Pricing isn’t about simply charging more money In fact, that’s a very risky long term value creation lever. The market eventually figures out what you’re doing.

Pricing leaders know that you need to be as good at creating value as your are at claiming it.

For a sustainable margin lift, look at these case studies exploring how to reshape the value you offer customers – and cost of delivering that value – to create a competitive advantage.

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The typical wholesaler is sales rep led, lacking a platform to gather and assess market intelligence. The rewards of strategic pricing goes beyond pricing policy and list price strategies. A good pricing initiative will spark discussion on customer value that can help ensure we focus on the right potential customers. It can drive new product decisions and help balance customer demand.

First, discard retailer and manufacturer models…

One key success factor: distributor pricing strategy should be built using industry specific models. Avoid using a retail-driven pricing model, retail pricing is based on a very different view of customer demand. The same applies to manufacturer based pricing models: distributors have a different pricing power and supply chain, different math is required.

There are emerging tools for wholesale pricing specifically built for distribution channel players. These accommodate our customer demand patterns and quirks in our supply chain.