Many people don’t realize there are two pricing experts at Strategic Pricing Associates named Bauders. Articles, videos, and promotional pieces often mention President David Bauders. Clients and associates of the SPA organization understand the work of Vice President and COO, Dolores Bauders. Only a few folks from outside this group have benefited from Dolores’ insights, until now. The following are excerpts from an interview of Dolores conducted by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales.
“I honestly cannot think of a single company that didn’t have some “Magic Gross Margin Percentage.””
According to Ms. Bauders, “Over the years our team has seen the price-related interworking of over 350 distributors. I honestly cannot think of a single company that didn’t have some “Magic Gross Margin Percentage.” It varies from company, sales cluster or branch office but some percentage – albeit 20, 25, 30 or something else – seems to raise its ugly head.”
The key to this phenomenon lies in either not trusting the “system price” or simply assuming that a 20 percent (or any other number) is standard in your market place. Often this magic number will be applied to all customers regardless of size of sale, business type or long term potential. As more distributors expand into adjoining spaces (electrical distributors into automation, power transmission distributors into motion control, fastener houses into mill supplies, and many more,) the opportunities for losing margin potential increases.
“Any logic around the magic gross margin percentage brakes down when you consider a couple of points.”
First, when competing against a distributor selling another manufacturer’s product, the distributor buy price is rarely the same. Most of these supply partners are aware of the end user, OEM and Contractor price levels of their competition, sometimes they even try to match the competitor’s level. But with countless variations in channel philosophies at the supplier level, the chance of competing wholesalers receiving exactly the same cost is close to zero.
When the product in question comes to competing distributors from the same supplier, the magic gross margin percentage still breaks down. Here’s an insight from Ms. Bauders: “We work with both manufacturers and distributors. In our work, we observe the same types of scatter plots on pricing levels coming from companies on the manufacturing side of the channel. The pricing level to distributors varies just like the pricing level distributors offer to their own customers. Mark-up pricing using a magic gross margin percentage doesn’t reflect reality.”
Perhaps this point illustrates the concerns many manufacturer sales managers have with providing significant “in-to-stock” prices for distributors. Countless managers have shared their private concerns that special prices awarded to distributors end up being sacrificed to the market because of poor pricing practices.
“which is better mark-up or discount pricing”
Attend any distributor association meeting and you are likely to overhear discussions around one of the longest running industry debates; which is better mark-up or discount pricing…
“The whole mark-up versus discounting issue has become a bit of a company culture issue. We see both types of wholesalers. There’s no real rhyme or reason to how they sort out. Both types are found in every line of trade. But, as a group, the discounters typically end up being more profitable. The cool thing is our process helps both kinds of companies generate higher gross margin dollars.”
Overcoming cultural issues is a critical component of establishing a new process. We asked Ms. Bauders to give us her prospective on what it takes to bring companies from either side of this cultural divide onto the Strategic Pricing Associates process. She commented, “We have been part of hundreds of process journeys. We’ve learned to tailor our approach to the culture of the organization. We’re talking subtle differences, but the little stuff counts in building confidence, comfort and ultimately results.”
Click here to read the complete interview.
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