How do your customers perceive value? Are you selling commodities, specialized products or value-added services?
Customers are much more likely to buy from a supplier who offers more than a number of products and a simple discount. A supplier that makes their value-added services more visible and charges for them will typically gain more business than those that try to include all their value-add into the price of their products.
Our clients in this category often manufacture their own products as well as distribute items from other manufacturers. They typically have large numbers of SKUs they must manage and price, which means implementation challenges for new pricing strategies. These firms offer their clients a wide range of products and also many valuable services that often are taken for granted by their customers. The price on each item typically includes the basic cost of the item and the services provided to customers. Competitors that do not offer any services can therefore undercut their prices and make the client company look expensive in the eyes of their customers.
Avoid the trap of simple pricing models.
We find that companies in this category often rely on a fairly simple cost plus pricing model due to the sheer volume of items they handle. We also find it’s quite common for salespeople in these companies to offer favored clients blanket discounts whether deserved or even requested which can seriously erode margins. Customers’ purchasing plans often change in terms of quantity, delivery schedules and product selection, but the suppliers simply do not have a good response to these deviations that protects profits.
Too much information can erode margins.
Industrial suppliers like this often suffer from a common syndrome: Their salespeople know too much about the raw cost of the items they are selling. It’s just too easy for them to give away unjustified discounts to their best customers, regardless of the total costs required to actually deliver the items to the customers on time. For example, it’s not uncommon for special order items which require special handling, extra freight costs, and so on to be sold at the same or even lower markup used for products that the customer may order every day.
Customers are willing to pay for valuable services.
Industrial suppliers provide extremely valuable services to their customers that they can charge for if they structure their pricing correctly. Handled properly, this can actually become a major competitive advantage for suppliers. Customers like receiving a service level that is consistent with their specific requirements and they are willing to pay appropriately for customized service levels. However, they do not want to pay for services they do not need; that is, to include the cost of services in the price of the products is not a sustainable strategy.
PriceGain helps companies in this business differentiate their offerings, develop pricing programs that their customers appreciate, and improve their profitability. We also help our clients implement their new pricing strategies so that their salespeople and customers understand and accept them.