ADS Solutions Wholesale Distribution Software Blog


Top 5 Pricing Strategies for Distributors

top 5 pricing strategies for distributors
Pricing strategies for distributors are critical; wholesalers and distributors compete on pricing with giants like Amazon and Walmart, and live in a world with razor thin margins. So how do they survive?

By employing the 5 pricing strategies illustrated in this infographic, distributors can remain competitive by can squeezing more profit out of each and every sale.

Before we delve into the top 5 pricing strategies for distributors, don’t think for a minute that today’s distributors survive by competing solely on price. Quite the contrary.

With pricing pressures from e-commerce competitors, it’s the value-added services like support, customer service, and industry expertise that keeps distributors’ value in the supply chain cemented firmly in place. However, there is no denying that price is first and foremost in many of our customers’ priorities. Therefore, in addition to the value-added services distributors bring to the table, it’s important that they make their customers feeling they are consistently getting the best possible prices.

So the question becomes, “How low can you go?” Fortunately, today’s distribution software can tell you that answer. Behind the scenes, it can compute a distributor’s profit on each item, as price varies. It can suggest additional items each customer is likely to want – items that carry a higher profit margin, making up for lower margins on other items in the same order. It can set lower and upper limits on pricing, so your salespeople don’t get carried away when trying to close a sale. In general, 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 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, distributors can use contracts to define their pricing strategies. You can set up contracts by:

  • customer
  • product
  • category & subcategory
  • vendor
  • expiration date
  • ship-to or bill-to

Pricing Strategy #2: Special Pricing

Special pricing strategies are 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 #3: 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 sales people don’t have to worry about the details. Instead, they can focus on what they do best: selling.

Pricing Strategy #4: Quantity Break Pricing

If your customers are not feeling like they are getting royal treatment with pricing strategies #1-3, 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
  • at each quantity break level (e.g. 10% off 1-50 items, 15% off 51-100 items, and so on)

Pricing Strategy #5: Discounts by Warehouse

Offering discounts by warehouse gives distributors an opportunity to move select inventory faster. A ‘warehouse’ doesn’t 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 sales people 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 pricing structures inside your distribution software, you can be assured that you will squeeze every cent out of each and every order.

Download “5 Top Pricing Strategies for Distributors” Infographic

 


On-Premise ERP Software Is Dying a Slow Death

On-Premise-ERP-Software-Is-Dying-a-Slow-Death

With the emergence of the Cloud as a viable platform for collaborating on business projects, older technology models and methods are fading into the distance. One example is with ERP software, which was once solely offered as an “on-premise” solution, but has now firmly entrenched itself in the Cloud. In fact, Cloud ERP software has become more popular than on-premise ERP software for a variety of different reasons. It’s no surprise that on-premise ERP software is dying a slow death.

ERP Software 101

ERP, or “Enterprise Resource Planning” software is business software that is used to store data on a common database, making information accessible throughout an entire organization. The main feature that compels businesses to purchase ERP software is its ability to integrate all transactions, across departments, with a single accounting core.

There are two basic types of ERP software; On-premise and Cloud ERP software.

On-premise ERP is physically installed on a company’s computers and servers, while Cloud-based ERP software is hosted on the vendor’s or a managed hosting company’s servers, then accessed through a web browser. Amazon Web Services (AWS) is one example of a secure, managed ERP host.

The Question of Security

When many people hear the word “Cloud”, the first thing that comes to mind is security. It’s easy to assume that on-premise software is more secure, but the way many major corporations are gravitating to the Cloud for ERP software shows that the security is more than capable. When it comes to the Cloud, professionally managed hosting providers often invest handsomely in resources and take extra measures when it comes to putting security controls in place. Today, many feel that Cloud ERP software even more secure than software installed on your own premises. With security concerns abated, on-premise ERP software is dying a slow death.

Pricing Models

Pricing is one of the benefits of Cloud ERP software that enables many companies to use it in the first place. On-premise software is typically considered a capital expenditure as a large, one-time investment upfront, while many Cloud-based systems are available with monthly SaaS (Software as a Service) pricing, and can be classified as operating expenses. With a considerably lower entry cost and reduced spending required for IT maintenance, many smaller companies are able to get a Cloud ERP system up and running right away to help streamline their business processes. The huge up-front and maintenance expense of on-premise ERP is one of the factors driving it to its grave.

Mobile Accessibility

Mobility is another relevant element of modern computing, and Cloud ERP software delivers it much more seamlessly than on-premise software. Typically, on-premise software requires a third-party to communicate between the mobile device and the software, while Cloud-based ERP software makes mobility easy because it can be accessed from virtually any device.

Scalability

One big reason that on-premise ERP software is dying a slow death is that it is more difficult to scale during periods of growth. Cloud ERP software can be upgraded quickly and new releases can be introduced much easier, without a great deal of expense. Forward-thinking businesses that have an eye toward growth find this benefit of Cloud ERP software just makes good business sense. And, should your business suffer a temporary downturn, Cloud ERP software scales down just as easily as it scales up: companies just purchase fewer licenses.

Following in Proven Footsteps

The old thinking that Cloud-based software and applications were risky propositions has been replaced with thinking of it as an opportunity to make your company better. Companies like Microsoft and Adobe have given up selling packaged and installed software, opting instead to lead the charge and show why Cloud solutions are far superior to their antiquated on-premise counterparts.

If you’d like to learn more about the benefits of Cloud ERP software, and how it can help transform your business, get in touch with us at ADS Solutions today.