It’s Time to Take Off Your Pricing Blindfold

Imagine that you have an old-fashioned map to drive from point A to point B using the least gasoline you could. That is the function of the purchasing manager. You can’t always predict road hazards, but you can chart a direct path to cost savings.

Now, imagine that you’re driving in the dark with one small flashlight, and you have the map imperfectly committed to memory. That is the sales director. They have a sense of where they need to end up, but there are also plenty of things that aren’t marked on the map like competition, customer demands and cost changes. If you now put a blindfold on and suddenly must deal with road crew detours and rush hour traffic, you become the pricing manger. 

That description may seem somewhat uncharitable, but it points to a common issue in the industry: too many distributors approach pricing with a blindfold on, relying on gut instinct and a lack of measurement. Yet pricing is perhaps the most crucial decision a distributor makes daily and requires a much more scientific approach for their financial health. Getting pricing right puts your company on the path to growth and profitability. Yet many distributors adjust prices, incorrectly calculate costs, and implement new sales and discounting tactics without real quantification. They’re wearing a blindfold while driving at night.

The Consequences of a Pricing Blindfold

An inability to quantify the impact of your pricing strategies is one of the biggest missed opportunities on your bottom line. This pricing blindfold can come out of many related issues:

• No Methodology: Many distributors lack a standardized method for evaluating pricing changes. This only creates chaos as different teams, branches or product line managers use their own subjective measures. The pricing manager doesn’t stand a chance at being systematic in this case.
• Missing Data: Most distributors are using some form of business intelligence and reporting tools, but they are not pushing them into automated dashboards and reports for their pricing managers. The more difficult it is for a pricing expert to track metrics like sales volumes, profit margins, customer behavior and more after implementing a price change, the more difficult it is to understand the true outcome of the strategy.
• Minimized Significance: Sometimes distributors simply lack awareness of the enormous impact that pricing can have on their financial health. If you aren’t tracking the impact of pricing strategy, you can’t overcome complacency toward pricing. Pricing is often treated like an individual adjustment to win a deal or a big job rather than a driver of success.

And the result of the pricing blindfold cascades through many parts of the business:

• Poor Pricing Practices: If you don’t have data, you are forced to use trial and error. You won’t be able to move quickly with market changes such as implementing new discounts or implementing practices that end up cannibalizing other sales. Worse, you’ll miss opportunities to earn higher margins with premium pricing because your team has focused on easy wins through that trial and error.
• Slowed Growth: You cannot grow quickly with bad pricing. If your pricing doesn’t match the real value you provide – higher or lower – you will limit your ability to break into new markets and win new customers. If you’re priced too high, customers move to your competitors. If you’re priced too low, you won’t take full advantage of the profitability in your growing sales volume.
• Profit Erosion: Of course, the worst effect is the erosion of your profitability. Pricing is sitting behind all your profitability even if you are more focused on sales and replacement costs. Pricing needs to be as much or more visible as the other practices in your company.

What Happens When You Remove the Pricing Blindfold?

The good news is that if you can take off the pricing blindfold, you can find many new paths to success. Here are some of those paths, with additional resources from the experts at Vendavo.

1. Move to Data-Driven Decisions

The most profitable distributors eliminate guesswork around pricing. They move to data-driven decisions that point to strategic price adjustments for maximizing profitability. This requires a method of systematic measure of the impact of price changes on volume, profit and customer behavior.

If you’re looking to prepare your data for growth and profitability, check out these tips.

2. Identify Value-added Sweet Spots: Value-added services are one of the most important competitive differentiators in the distribution industry. But do you know what level of service is additive to your differentiation and what is simply a profit killer? Quantifying your pricing impact helps you find out your sweet spot that can maximize both customer satisfaction and profitability. And if you need some tips on pricing your services, the experts at Vendavo have your back.

3. Find New Competitive Opportunities: In a similar way, understanding your pricing affects your competitive deals gives you a big edge in the market. You will be better able to adjust to competitive pressures, improve your market positioning and capture a larger market share.

Dan Cakora, Business Consultant at Vendavo has some fantastic tips for building a competitive pricing strategy here.

4. Improve Negotiations: Negotiations improve with data. Sales reps can more quickly get to an agreeable bid and purchasing managers can present clear evidence to vendors and suppliers for cost adjustments. 

Discover how to digitize B2B negotiations to safeguard sales and support customer success.

5. Increase Profitability: The result of quantified pricing and consistent measurement in an uptick in your bottom line. Even small adjustments make large differences if you manage them consistently with optimized strategies.

Here’s why profitability matters.

Keep Your Eyes on Pricing for the Long-Haul

The best pricing managers know that pricing is not a one-time event. It is a continuous movement toward profit, navigating both market changes and internal pressures. You need a combination of leading technology, analytical experience, and great communication to navigate this tricky dance.

Technology is the biggest enabler of pricing success in the modern distribution industry. Software solutions like Vendavo Pricepoint revolutionize how distributors are measuring the impact of their pricing strategies. This kind of technology takes you far beyond the basic spreadsheets used by most pricing managers. You can leverage data integration points to connect your pricing data with sales figures, customer actions and trend analysis.

Here are the benefits of implementing a solution like Pricepoint:

• Get access to advanced analytics to better segment your customers
• Understand elasticity without lengthy calculations
• Automated reporting keeps you consistent as you track key metrics and continuously work toward higher profits
• Implement and streamline pricing best practices.
• Avoid tedious data collection tasks like manual entry and report generation
• Become more consistent and free up time for analysis and decision making

What does the world of analysis and decision-making look like? The end goal of the technology is to help the analytically minded pricing manager unlock the power of the data beyond just math and figures. The most strategic parts of their job can become their focus. Naturally, many pricing mangers will spend a large portion of their analysis on profit growth and maintenance, studying how price change impact profitability and quickly correcting changes that erode margins. But they will also have more time to study price movements, elasticity and volume, monitor and adjust to competitive changes and ultimately make real contributions to discussions about overall revenue growth.

An Inclusive Pricing Culture

Good pricing is about so much more than crunching numbers quickly.When you measure the impact of pricing, it fosters a cultural shift toward profitability in your entire organization.

Most distributors still see pricing as a solitary function that is managed by a dedicated team, and often siloed from the rest of the organization. When your pricing successes are well quantified and communicated, pricing managers become catalysts for a company-wide understanding of profitability. Pricing managers get invited to meetings with sales, marketing and finance because they contribute valuable insights and perspectives. Sharing a profitable vision means that the entire organization will be working to align pricing decisions with profitability goals.

When you implement a solution like Vendavo Pricepoint, you make data transparency and communication a regular part of your pricing culture. You can share key metrics with relevant stakeholder and include them in your pricing discussions. Transparent data makes everyone’s ideas that much better. Leading distribution pricing managers host regular review sessions to discuss the impact of their pricing strategies. In return, sales teams can share their customer feedback about price changes as well as competitive and market intelligence. And data makes it easier to train and educate new employees about how business decisions impact performance.

And that’s what happens when you once were blind, but now you see.