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24 FEDA News & Views continued on page 32 T he act of pric- ing products is one of the most sen- sitive jobs in most distribution organizations. Many com- panies find themselves leaning toward convenience versus maximization when they set up pricing strategies. By choosing conve- nience, organizations leave a significant amount of gross margin dollars on the table. By taking a strategic, coordinated approach to end user pricing, distribu- tors can significantly improve margins and ultimately drive net profit. In order to realize this return, you have to make an investment. Investing in a pricing coordinator is one of the best moves I made during my distribution career. After attending a seminar in 2002, one that I now teach, I took away the concept of a pricing matrix guru. From a technology utiliza- tion perspective, most distributors use less than 15 percent of the capability of their distribution software package. In order to pour a little salt in the wound, we are often reminded what percent- age of that package we paid for. The math doesn't work in our favor. One of the most underutilized features of any distribution software package is the pricing matrix. Sure, we dabble in the functionality and get the basics down. Sadly, this is where most companies stop. They fail to unleash the power of a strategic pricing matrix. Why You Should Have a Pricing Coordinator After coming to this realization back in the early 2000's, I rec- ommended that we invest in a person dedicated to the coor- dination and maximization of pricing products. Not only would this person be charged with mastering the matrix functionality, but they would learn the principles of strate- gic price increases and mar- gin improvement. In about 12 months, through the hard work of this person and several others, we realized a 2 percent increase in our average gross margin. This was more than enough to justify the exis- tence of the position. Taking Segmentation to the Next Level As I mentioned earlier, most distribu- tors take a convenient approach to cre- ating a pricing matrix. They limit the number of cus- tomer types to four or five. Sometimes these are called tiers. Often they are based on volume or potential. Regardless, the meth- od generally lacks any strategic thought. This is really short- sighted. Even if you generally serve one type of end user, could they be broken down into subsections? I worked with a pool supply distributor a few years ago. At first blush, one would sug- gest that they served a limited customer type. Upon closer examination, they sold to service contractors, residen- tial and commercial builders, masons and retail dealers. There were several opportunities for segmentation in their customer mix. At least we could do bet- ter than: A, B, C and resale. The real powerful segmentation comes on the product side of the matrix. Again, I have found a significant amount of lazy thought in most pricing schemes. How many of us have created a flat discount or markup across a ven- dor line for the same customer type? All "Level Three" customers get 25 percent off list on Superior Brand widgets. This is very common. In fact, when I teach this subject, several participants tend to grin and look at the floor. It happens. We were really stressed out when we set up the system and opted for a quick approach to pricing. Here is the prob- lem: That was seven years ago. It's time to update our thinking. If we look at an entire line of prod- ucts, some are going to be really hot sellers and others are there to complete the offering. Ask yourself this question: What percentage of a line do your cus- tomers really know what they should be paying? The really popular items fly off the shelves and enjoy significant turns Unfortunately, these items generally account for less than 10 percent of the SKUs in the entire line of stocked prod- ucts. The remaining 90 percent live on your shelves and accu- mulate carrying cost. If we really want to make some money, we need to estab- lish pricing based on the popular- ity of the item. This is sometimes referred to as sen- sitivity-based pric- ing. The Job of a Pricing Coordinator Train your new pricing matrix guru to study prod- uct movement. With guidance from sales management, the pricing matrix should allow for com- petitive margins on highly popular items and significant increases on slower mov- ing product. Over time, maintenance of this scheme will require less and less Why You Should Have a Pricing Why You Should Have a Pricing Coordinator After coming to this realization back in the early 2000's, I rec ommended that we invest in a person dedicated to the coor dination and maximization of pricing products. Not only would this person be charged with mastering the matrix functionality, but they would learn the principles of strate gic price increases and mar gin improvement. In about 12 months, through the hard work of this person and several others, we realized a 2 percent increase in our average gross margin. This was he act of pric ing products is one of the most sen- in most distribution organizations. Many com more than enough to justify the exis tence of the position. Taking Segmentation to the Next Level As I mentioned earlier, most distribu Why You Should Have a Pricing Coordinator After coming to this realization he act of pric- ing products is one of - n back in the early 2000's, I rec gic price increases and mar gin improvement. In about 12 months, through the hard work of this person and several others, we realized a 2 percent increase in our average gross margin. This was more than enough to justify the exis tence of the position. Taking Segmentation to the Coordinator T he act of pric ing products is one of the most sen sitive jobs most distribution organizations. Many com panies find themselves T the most sen sitive jobs most distribution organizations. Many com panies find themselves By Jason Bader Jason@Distributionteam.com One of the most underutilized features of any distribution software package is the pricing matrix. …After coming to this realization back in the early 2000's, I recommended that we invest in a person dedicated to the coordination and maximization of pricing products.