When a distributor decides to increase a price or prices, it should first be articulated and sold to a distributor’s sales team, says Reilly. This internal process should begin about 90 days before the distributor hits the market with the change. The key to this internal pricing initiative is to make sure the sales team is privy to why price increases are occurring and how it’s important to the health of the company.

“The notion of increasing price has to begin before the (sales staff) lays the price on (clients),” Reilly says. The sales staff should engage in a defensive sales campaign “where they begin to remind the customer of just how valuable they are. They sell the value before the increase.” 

Distributors should also be transparent with customers. It’s important to acknowledge that lasting relationships are typically built on trust. Customers should not have to compare prices with the distributor’s competitors each month or be concerned about how price changes are impacting the distributor’s inventory, Deist says.

“You absolutely want to communicate about price increases,” he adds. “If you find that you have no way of explaining a price increase then that is a symptom that your pricing strategy is based on deception and not based on matching value delivered to value supplied.”

Salespeople should also refrain from using the word “increase.” Rather they should call it a pricing adjustment or a pricing change, says Reilly.
Research shows that clients are less irritated by a price increase that is caused by the rising cost of raw materials compared to an increase caused by the distributor trying to gain margin.

“So (salespeople) need to be crystal clear on what is going into the adjustment and if they use the term ‘adjustment’ it is not as emotionally tagged. When you say ‘increase,’ you get a defensive reaction on the other end,” Reilly says. “When they understand that it is strategic and not accidental, [customers] will get behind it.”

A distributor can benefit by showing sales staff and clients how net increases in prices are derived from both increases and decreases in raw material costs, says Reilly.Distributors can also benefit by building a grandfather element into their pricing model, in which current prices are honored for a period of time.

Another way distributors can alleviate some of the pain associated with price increases is by offering surplus inventory at original prices until it is depleted, Reilly says.

If the pricing adjustments are the result of a distributor sharpening its identity either as a valued-added service provider or as a low cost seller, then the internal changes should also be articulated to clients.

“That is what I call integrity pricing because it is so transparent that it is hard to argue against,” Reilly says.

Bates recommends distributors explain changes in their pricing model and structure to sales representatives. They should also explain how price sensitivity to certain products will impact margins and ultimately increase their commissions over time.

“If distributors can do that properly, then you can get their attention in a hurry,” Bates says. “You got to put it in ‘here’s your commission check’ terms.”

Developing a pricing strategy is not a one-and-done process. Distributors will have to continually address it to maximize their profitability. 

Brendan O’Brien is a freelance writer based in Greenfield, Wisconsin. He is a frequent contributor to Sanitary Maintenance.

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Developing A Better Product Pricing Strategy