In distribution, the most innovative companies are quite often the best connected. They share best practices with a cadre of others. They build de facto cartels for exploring new concepts. Read how Livingston & Haven literally radiates the attitude of networking, innovation and teamwork and how it lead to implementing strategic pricing processes and tools that improved their margins.
Excerpts of the Case Study follow.
“had invested considerable time and effort to margin improvement with minimal results prior to deciding to make a switch to an outside plan”
To illustrate the depth of this commitment, Clif Vann, the company’s CEO, while speaking at a company wide sales meeting challenged every employee of the company to do “whatever it takes to insure the long term health of U.S. Manufacturing.” Networking, innovation and teamwork play a big part in the strategy. Here’s how an example.
Bob Decker, Livingston & Haven’s Director of Strategic Initiatives, was visiting relatives in Louisville, Kentucky when he decided to pay a networking visit to fellow distributor Air Hydro Power. Because they have a few product lines in common and similar thoughts about distribution, benchmarking made a great deal of sense. During this visit, Bob began to hear of their results with a pricing strategy – specifically the Strategic Pricing Associates process. As is often the case with networking, during the next few months Livingston & Haven hear similar stories from other networking partners.
The idea of building of margin improvement wasn’t a new one to Livingston & Haven. They had invested considerable time and effort to margin improvement with minimal results prior to deciding to make a switch to an outside plan. Further, when a new data driven plan was brought to a leadership meeting some argued for a renewed attempt at a home-grown plan. But, the stakes were high and the need for margin control great, so the decision was made to explore outside offerings.
“the effort has paid dividends….This whole new way of thinking about pricing has allowed us to change the direction of our margin percentage”
They found they needed to rethink their whole plan for handling second source materials. Through the years of working to assist customers with locating oddball items, the practice had left Livingston & Haven with a number of unanswered issues. Topics like how to handle freight, lack of specific product knowledge and customer warranty risks had gone mostly unanswered. These had to be explored, understood and policies established to improve the whole concept of their customer service.
In addition to these issues, the implementation team found themselves facing a few other issues. Jamie Blackburn, L&H Pricing Manager, commented, “We had over 72,000 line items to review. Believe it or not, we had over 60 years of exception based pricing embedded into our system. Our team is all about getting things right for the customer and each of these needed to be researched, an outcome created and a decision made before we could go live with SPA.”
But the Strategic Pricing team at Livingston & Haven feels the effort has paid dividends. For example, Mr. Decker relates, “Prior to applying the SPA process, exception pricing – deviating from the system standard – was over 67% of our business and we only counted price drops greater than 10%. This created issues with consistency and really complicated the job of our inside sales team. Today this practice has dropped to nearly zero. The system does not allow downward pricing adjustments, the inside sales team can only adjust upwards.”
According to pricing team member Blackburn, “This whole new way of thinking about pricing has allowed us to change the direction of our margin percentage. We are seeing the typical two point increase that SPA talks about, and then some.” Bob Decker chimed in, “Salespeople can no longer cave instantly to negative price messages. Our process requires them to get pricing adjustment approval from someone on the management team and that little delay often allows them the opportunity to think about the value we provide and justify the L&H price in their own mind.”
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