Uncertain Times Call for Low Risk Profitability Strategies

If you haven’t had a chance to read “Brad Williams: 2023 predictions,” in Supply House Times this week please give it a read. Brad made some solid 2022 predictions so I think it’s worth your time. He makes an assortment of gloomy and optimistic predictions in areas like housing, M&A activity, top-line growth rates and more.

No matter your own personal outlook on these topics, it is clear that distributors are operating in uncertain times and concerned about a number of volatile market factors. The business environment can be unpredictable, and some industries have brighter prospects than others. As eCommerce grows, commoditization expands and interest rates threaten to rise even more, distributors must stay abreast of new developments to remain competitive.

With data-driven insights and powerful analytics, leading distributors have found that price optimization is the best way to drive up profits in industries with tight margins. For those companies who lack the staff or resources to undertake a complicated pricing project, there exists a simpler path to improved outcomes. With less effort and investment, businesses can achieve significant profits with fewer headaches.

Another thing is clear. When you are entering an uncertain year, you need to find a smart, low risk path to margin optimization. When it comes to uncertain economic environments, many distributors take a wait-and-see approach to strategic initiatives. However, distributors who have the vision to implement a pricing project can be rewarded with improved margins and market share. The key is finding the right path; one that involves minimal risk yet still delivers measurable results.

How Should Distributors Proceed?

In times of uncertainty, distributors are a cautious bunch. They prefer to approach pricing projects with some data and a lot of their own intuition. Afterall, pricing is one of the most important aspects of your relationship with your customers. Can we trust something so important to price optimization solutions? As distributors look to maximize profits in 2023’s uncertainty, pricing projects should be seen as an attractive option. However, the implementation of such projects requires great care and consideration; reactions from the sales team must be taken into account before proceeding. With the right strategy, these projects can offer significant rewards; but it takes executive buy-in, leadership and not a small amount of courage to guide a new pricing strategy in these uncertain times.

Data can help you make the right decisions and convince your entire team to back new pricing strategies that are low risk. One good example are commodity prices versus special stock items. Commodities tend to be less price elastic. Clients buy large amounts of them and are looking for the best deals. But special inventory that you keep for a client can be sold at higher profits without affecting buying behavior as much. An example of commodity stock and special stock in a durable goods business would be power tools. Commodity stock would include items such as drill bits, saw blades and other standard accessories that are widely available and used in many products and applications. Special stock would include higher-end tool sets or specialty accessories that are more specific to certain projects and may have limited availability or require more advanced skill to use effectively. In other words, the contractors you sell to have to have the right tool for the job and are willing to pay for it that one time they need it for a large job. But they’ll burn through blades all the time and will shop around a bit for those.

You Can Start Simply

Choosing your first strategic areas to tweak margin can be a great starting point for distributors. Unusual (“long-tail”) products and those with a high cost to serve or unique value adds are particularly attractive targets for some lower-risk tweaking. But it’s not easy to know where to start without the right data analysis.

That’s why we so frequently recommend distribution-specific price optimization solutions. That way, you can identify new areas for price improvement in hours or days not weeks or month. And solutions that have integrations to common distribution ERP systems like Epicor Eclipse and Prophet21 make this process simple and seamless; sales teams do not need to alter their behavior when the new prices are right there inside your matrix, making it a win-win situation for all parties involved.

Starting a pricing optimization process does not need to be complex. There is no need for distributors to restructure their entire pricing matrix and retrain their sales team for more profitable price points. Utilizing existing ERP and data resources makes the process simpler, and change-management processes are unnecessary. Moreover, IT personnel do not have to take on any heavy lifting; all that is necessary is a few minor adjustments to the ERP system.

User and Solution Providers: Help Us Update Our Solutions Guide

We’ll be doing a deep update on our price optimization solutions guide this year. If you are a user who wants to provide feedback on a particular solution or a vendor who sees the value in taking part in an independent evaluation and review for our site listings, please contact us today.