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Thursday, July 30, 2009

Price Dividing Winners and Losers?

Consider these comments from senior managers. Do they sound familiar or are reminiscent of your market?
  • "efforts to use limited discounts to lure customers to full-priced items don't work"
  • "aggressively marketed price reductions help keep sales momentum"
  • "shoppers have been chasing bargains, visiting a variety of retailers and snatching up only low priced goods"
  • "had to cut prices in some areas hasn't wanted to - becaise others are doing the same. Is someone morves, then we have to move."
  • "price cutting and the move to low price is long-term as opposed to weekly specials"
  • "use loyalty cards / programs to lure customers"
  • "If the item is not on sale, it is far more likely to remain on the shelves"
Change a little of the terminology and it sounds like we are hearing from a number of distributors. Price is driving more customer decisions than ever. The industry where these comments came from ... the grocery industry (and an article in yesterday's WSJ), which is known for having lower net profits than electrical distribution.

Feedback we're hearing from distributors is that gross margins are down 1-2%, on average, across all product categories. With margins dropping, operating costs need to drop to retain operational profitability.

A couple of things were observing is that
  • distributors need to do a better job of training their salespeople on their value-
  • sales training is necessary
  • price management needs to become a distributor core competency
  • determining what your "price premium" could / should be relative to your competitors is something most haven't considered
Reviewing your price matrix and pricing processes can help make some distributors more efficient and profitable.

Some things to consider ... have you thought about asking your customers how price competitive you are? Obviously you can't ask them outright, but there are ways. Also, are there ways that you can monitor marketplace pricing to therefore better know the marketplace?

How is pricing affecting you, your marketplace, your bottom line? How are you competing against your low price competitor.

Take our 1 question Price / Margin Erosion survey

Channel Marketing Group | Allen Ray Associates