Getting the Price Right
The pandemic has disrupted supply chains, resulting in shortages of goods and rapidly escalating material costs. Suppliers and distributors have had to adjust their pricing policies (see related article: best-pricing-strategies). When considering a price increase, all customers are not the same. Both suppliers and distributors have asked me how they can determine if the customer is getting the right price.
To determine pricing levels, I suggest you create a pricing strategy based on customer segmentation. Consider these elements:
- Order frequency – Customers that purchase weekly are loyal, core accounts and don’t shop around. They are your base. You don’t want to lose them through overly aggressive pricing. Consider moderate and measured price increases for this group.
Buyers that come to you only because of an urgent need or because their normal supply channel is out of stock are infrequent customers. Assign maximum pricing to this group.
- Size of orders – The cost of processing an order is the same regardless of size but large orders from core accounts receive perks like free delivery or other special considerations. For smaller orders consider charging for these services as part of your pricing strategy.
- Breadth of products – Core customers buy a mixture of high and low volume products frequently, and sometimes non-standard items. Be sure to price each item accordingly, with best buyers receiving best price. Maximize your sales by using your eCommerce technology to upsell and cross sell more products.
Review your accounts
When considering price increases, I recommend reviewing all accounts by sales rep or store assignment. This review should list the current pricing for each item (breath of products purchased), order frequency, and annual sales. You will find that customers with contracts are often getting prices that are too high or too low. Make adjustments. Infrequent shoppers may have been given special pricing that’s too low. Take the time to correct those.
Intervals of price increases are a good time to increase your profit margins, if handled correctly. Review your accounts for proper segmentation, remove inappropriate pricing, and engage in positive interactions with your customers. In this way periods of price instability can become valued, rather that dreaded, occurrences.