RA Quick Insights: Top Pricing Quick Wins for Distributors

Below are the top Revenue Growth Analytics quick wins that Distributors should implement (or right-size) to boost gross profits $ by 5-20% and increase liquidity. 

Many distribution environments are quasi-commoditized, characterized by heavy competition, low margin, and frequent M&A as larger distributors aim to increase their footprint and drive supply chain synergies. 

To stand out from the pack and protect & grow profits, mid-market distributors should focus on building or rightsizing the below Pricing capabilities. 

1. Dynamic everyday pricing: create a flexible system that implements weekly/monthly prices based on competitive prices, product category goals, and inventory DOH. This dynamic pricing system shouldn't be overly complicated, nor should it involve expensive turnkey solutions and 12-18 month development + pilot times. Simplicity & pragmatism usually wins here. 

2. Tiered pricing (Customer Segmentation): As part of the dynamic pricing implementation, tiered pricing involves offering customers (typically retailers) different price levels based on their annual purchase levels, Customer Lifetime Value, or RFM scores ("Recency-Frequency-Monetary"). Your best customers that purchase the most frequently and in the largest quantities should get the best price. 

3. Quantity discounts: create an incentive structure that rewards large orders, with iterative discounts applied to various order quantity ranges. QDs are vital in ensuring you move the inventory out of your warehouses and help accelerate sales, profits, and cash position.

4. Dynamic clearance pricing: most distributors deal with the "unproductive inventory" problem that eats into profits and ties up cash. Building a dynamic and automated system that optimizes clearance discounts based on inventory levels, DOH goals, and competitive prices will substantially improve your Operating Profit and cash position. Like everyday price setting, dynamic clearance pricing does not have to be complicated or part of some expensive enterprise setup. A pragmatic, rules-based engine co-developed with key internal experts across sales, pricing, and supply chain will do the trick.

5. Rebate/loyalty program (create or restructure): Ensure that you have a rebate program that rewards your customers' annual volume and growth. Too often, I see rebate programs that solely reward annual purchase levels, with many rebate schemes unchanged from a decade ago. 

6. Bulk purchase optimization (for sales/merchandising/supply chain teams): the number 1 cause for distributors getting cash-strapped with unproductive inventory piling up in warehouses is aggressive bulk purchases by Distributor Merchandising teams. Manufacturers frequently offer deep discounts to Distributors to offload products, with Distributors blinded by low prices. There needs to be an intelligent decision tool that considers historical demand, price elasticities, and inventory holding costs to suggest optimal bulk purchases for buyers.