Generous salespeople were hurting margins by trying to please customers.
Situation: A fast-growing parts distributor had no consistent pricing method.
Our client is a major supplier of industrial components to customers in several countries with annual revenues of over $1.5 billion. They have a huge catalog of parts that they must manage and price. The company owns most of their own outlets, but also works with franchised distributors in several countries. The firm had grown rapidly over the previous five years, which resulted in inadequate controls over how it handled pricing. In an internal audit, the companys managers discovered that customers were getting different prices for the same products from different outlets. In some cases, prices also varied depending on the salesperson they talked to within a single outlet.
Solution: Tactical and procedural changes to stop the revenue leakage.
PriceGain was called in by the firms senior management to develop a plan for restructuring the companys pricing system. By reviewing historical sales data, we found that the clients systems were not keeping up with company growth. We also discovered that the company had not been charging for value-added services including freight, installation, commissioning, calibration, location of hard-to-find items, and so on. To ensure consistency across all regions and outlets, centralized control over price lists were implemented through tactical and procedural changes to provide the company with an early win and stimulate salespeople to embrace additional changes.
Results: Immediate 1% to 3% profit improvement and support for a new pricing strategy.
A new centrally-controlled price list for all products and value-added services was introduced. We worked with the clients internal team to manage the transition and train salespeople on the importance of sticking with listed prices rather than awarding special prices to favored customers. By using the new price list, EBITDA margins in the outlets improved immediately by 1-3%! The whole company is now much more aware of the importance of consistently handling pricing decisions and the stage is set for bigger changes to the companys pricing strategy.