Reevaluating Your Pricing Strategy
Distributors can be reluctant to change the way they figure out pricing. There are many factors that determine pricing structure, but keeping it simple may not be the best way to maximize profits. Pricing should be about the value of products, not the cost.
A good place to start is with product category, region, and size of customer. But for maximum profitability, you will have to go beyond those basic criteria.
Here are some things to take into consideration as you reevaluate your company’s pricing strategy:
- Market factors: your pricing team needs to pay close attention to market factors, especially those based on raw materials
- Commodity versus non-commodity, product classification, strategic customer versus non-strategic, customer value
- Look at your customers’ willingness to pay, if they are ordering more of one product or another, and how that relates to their current contracts?
- Competitor movement: what are your competitors doing and how are they adjusting to market factors?
With more accurate pricing data, you can find spots to negotiate better supplier costs. Patterns in customer purchasing will give you a lot of the information you’re looking for. Your pricing structure depends on the quality of your data. With larger accounts, you are more likely to collect in-depth data. If you use this same process with all your accounts, you can realize that same benefit and maximize your profits across the board.
For more information, please read the full article.