Distributor pricing strategy is critical for most wholesalers and distributors that compete on pricing with giants like Amazon and Walmart.
Like most wholesalers, these distributors operate in an environment of razor thin margins. So how do they survive?
By employing the top 5 pricing strategies discussed in this blog, distributors can remain competitive by squeezing more profit out of each and every sale they make.
Before we delve into the top 5 pricing strategies for distributors, do not think for a minute that today’s distributors survive by competing solely on price. Quite the contrary.
With pricing pressures from giant retailers and eCommerce competitors, it comes down to the value-added services like support, customer service, and industry expertise that represent distributors’ value-added in the supply chain and ensure that they are not disintermediated. However, there is no denying that price is a critical component of most customers’ decision-making. Therefore, in addition to the value-added services that distributors bring to the table, it is also important that distributors make their customers feeling they are consistently getting the best possible prices.
So, the distributor pricing strategy really becomes the question of “How low can you go?” Fortunately, good distribution software like Accolent ERP, can tell you that answer. Setting minimum margins on products prevents salespersons from discounting too much. Prompting salespersons with alternate products and product accessories, which often can carry higher margins, makes sure they upsell when they can. Also, comprehensive bid calculators can be used to analyze what-if pricing scenarios line-by-line or for the order in total.
In general, good ERP software should support all competitive pricing strategies for distributors, ensuring that you squeeze every last cent out of each sale, while still making your customers feel like they are getting a fantastic deal. Is this trickery? Or just an intelligent, modern way to leverage technology to your advantage?
The top 5 pricing strategies for distributors are made up of a series of layered discounts available to different types of customers and on different tiers of products, in a way that mathematically maximizes your overall profitability. In a sense, pricing strategies serve as a way to provide preferential treatment to each and every customer, based on their pain points and unique purchasing patterns.
Let’s look at 5 ways distributors can squeeze more out of their pricing.
Pricing Strategy #1: Contract Pricing
At the very least, a distributor pricing strategy should use contracts with multiple contracts able to be applied in a specified sequential order. You can set up contracts by:
- category & subcategory
- expiration date
- ship-to or bill-to
Pricing Strategy #2: Quantity Break Pricing
Then, try tossing in some quantity breaks. There’s nothing like a two-fer to bolster sales volume. When applied to slow moving product categories, quantity break pricing is a great way to clear out sluggish or unwanted inventory. Try setting quantity breaks:
- for specific customer pricing tiers
- for all customers
- for a specific product, where you can assign a specific dollar price or give a percentage discount off list price
- at each quantity break level (e.g., 10% off 1-50 items, 15% off 51-100 items, and so on)
Pricing Strategy #3: Special Pricing
Special pricing strategies can be user-defined strategies tied directly to margins. They might entail giving discounts off list prices, or the reverse: marking up from your cost.
Pricing Strategy #4: Advertised Pricing
Does your distribution software allow you to program date-sensitive, short-term pricing on products you are advertising? What about at certain times of the year, when you may offer a blanket discount to keep your cash registers ringing? Terrific! Then take advantage of loss leaders.
Some distributors use loss leaders to stimulate sales of certain products and advertise those loss leaders. Even though profit margins on loss leaders might be negative, what distributors profit on each overall order compensates for that.
Advertised pricing is a way to structure these promotions, and automate start times and end times, so your salespersons do not have to worry about the details. Instead, they can focus on what they do best: selling.
Pricing Strategy #5: Discounts by Warehouse
Offering discounts by warehouse gives distributors an opportunity to move select inventory faster. A “warehouse” does not need to be a physical warehouse: it can be grouped inventory that you’ve moved to a certain part of your existing warehouse or inventory that is associated with one of your business units.
Just use your software’s ability to group, price, and sell products by “warehouse”. You can use this strategy on just about any classification of inventory.
Conclusion: Let Your Distribution Software Support Your Pricing Strategies
Distributors work in a fast-paced environment, often processing thousands of transactions each day.
You don’t want your salespersons fumbling around trying to figure out exactly what pricing incentives have been approved and which are restricted:
the process of offering discounts to entice and keep customers should be quick and easy. By setting up and maintaining your distributor pricing strategy as part of your overall ERP software, you can be assured that you will squeeze every cent
out of each and every order.
Call us today to learn about Accolent ERP’s complex pricing options that give you all the tools you need to implement your distributor pricing strategy in a clean, structured, easy-to-maintain way.