Pricing Challenges in Distribution
Today in distribution, pricing challenges are growing increasingly
complex. The number of products in the distribution value
chain continues to grow and distributors continue to consolidate. The
growing number of products, segments, buying groups, and individual
customers is leading to an exponential growth in the number of
prices that must be managed effectively.
Distribution’s customers have become increasingly sophisticated
and are much more likely to have access to market-related data
and greater technology resources to process this data. This
proliferation of data has exponentially increased the amount of
price information that distributors must track in order to ensure
their offerings are competitive and optimally priced.
Managing rebates – both during negotiations and after the
sale – has led to inefficient manual processes. Lack
of management and oversight of contract compliance has led to billing
errors and customers’ cherry picking. Adding to all
of this complexity is unnecessary discounting by sales reps who
lack tools to properly evaluate contracts and deals.
Experts unanimously concede that Pricing is the most
powerful lever companies have to affect profits. Marn, Roegner,
and Zawada, in their revolutionary book, The Price Advantage, assert: “Failure
to take real initiative in pricing today virtually assures that
percentage points of price will slip through your hands annually—and
that huge chunks of operating profit will drop off your bottom
line.” In distribution, where margins are
razor thin, pricing excellence has become a competitive imperative.
Distribution faces a broad range of pricing challenges:
- Proliferation of Pricing Entities: Too many pricing
possibilities to keep track of manually, including private-label
prices. Simply can’t sort through pricing alternatives
without a system.
- Negotiation Tools: Sales people don’t have
adequate tools to negotiate confidently with customers. Cost
to serve, willingness to pay, current market climate, customer
price history and other important information are not incorporated
into price negotiations
- Manual Limitations: Too much effort and time to
update prices, and don’t have time to consider impact on
existing customers and contracts. Excessive manual data
entry. Too much dependence on spreadsheets.
- Oversight of Contracts and Rebates: companies
unaware that customers are not paying contract price. Lack
of rebate information during negotiations. Unknown abuses
of rebates.
- Pricing Process: Pricing decisions made based
on “gut feel” rather than consideration of relevant
data
- Win-Loss Tracking: Lack robust ability to systematically
track wins and losses and incorporate feedback into pricing
decisions.
These challenges commonly lead to opportunities to dramatically
enhance business results by addressing them with proven processes,
tools, and pricing science. PROS is a leading provider of
high-value solutions that specifically address these challenges.
PROS Pricing Solutions for Distribution
To meet the many pricing challenges faced by distributors, PROS
provides a comprehensive suite of pricing software tools, including
Analytics, Execution, and Optimization.
These solutions drive high value in distribution in many different
ways:
With PROS Pricing
Analytics tools, decision makers
can:
- Identify and correct destructive pricing trends
- Locate and correct poorly performing customers and
segments
- Drill down to identify root causes of poor
pricing performance
- Evaluate and quantify pricing improvement opportunities
- Understand demand behavior across segments
- Monitor market dynamics and pricing performance
to enable faster response to problems and opportunities
With PROS Pricing
Execution tools, decision makers
can:
- Provide field decision support tools that
increases sales’ confidence in system prices, empowering
them to quote the right price
- Eliminate manual pricing errors by ensuring
that negotiated prices are communicated correctly to ERP systems
and rebates are applied correctly
- Realize more from a price increase by establishing guidelines (realistic
floors and targets) based on defined pricing strategies
- Improve time-to-market of price changes
- Prevent unnecessary profit leakage through consistent application
of pricing strategy
- Create and execute business rules that eliminate
irrational pricing an consistently enforce contract terms
With PROS Pricing
Optimization tools, decision
makers can:
- Optimize price points based on best available
inputs, including forecasts, business rules, and constraints
- Use advanced analytics to guide better pricing decisions, considering price-demand
relationships, including zones of indifference
- Use price-testing to capture price elasticities
across business segments
- Minimize pricing mistakes by evaluating what-if scenarios
- Better forecasts to improve optimization results
- Automate price optimization routines for massive
data sets
Proven Results
Having deployed the Pricing Solution Suite at many large distribution
companies, PROS keenly recognizes challenges faced by today's distributor. Increased
pressure to create shareholder value while margins grow slimmer;
continued distributor consolidation; unpredictability in transportation
and sourcing costs; and competing priorities (new markets, new
products; new IT initiatives) with limited resources, just to name
a few.
By eliminating profit leaks, uncovering hidden price improvement
opportunities, providing sales people with better negotiation tools,
and optimizing prices across segments, PROS customers have been
able to leverage the power of pricing.
Case Study: One of our customers
is a building products distributor that employs approximately a
thousand sales people with full pricing autonomy quoting tens of
thousands of prices every day. With tens of thousands of
products marketed and sold across multiple U.S. regions, our customer
found it difficult to aggregate and analyze timely market data
to implement effective pricing. Our analytics and execution
software products were implemented to provide key market and cost
information, market pricing benchmarks and customer-specific decision
support during real-time negotiations. This allowed costs
and profitability to be accessible at the time of quote. As
a result of implementing our products, the customer improved sales
force productivity, reduced variance across regions, increased
deal capture percentages and increased profits.
To learn more about the opportunity ahead of you
by achieving Pricing Excellence please contact info@prospricing.com or
call our sales team at +1 713-335-5277.
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