© 2010 evergreen consulting, llc all rights reserved strategic pricing for distributors™ 1 gas...
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© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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Gas & Supply Lori Kneeppel, Marty Kearns & David Dewey
December 30, 2010
Presented by Brent Grover
© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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NAW Institute Fellow
Author of six NAW books
Distribution CEO
Business school faculty
International firm CPA
Brent R. GroverEvergreen Consulting, LLC
29525 Chagrin Boulevard, Suite 214Cleveland, OH 44122
brent@ evergreen-consulting.com(216) 360-4600 ext.101
© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
About Evergreen Consulting
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Distribution experts
Strategy and profit improvement tactics
Clients exclusively in distribution channel
Team of experienced staff devoted to pricing projects
www.evergreen-consulting.com
© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
Distributor Pricing Chaos - list✓
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Large number of customers Large number of items No one person accountable for pricing Sales staff sets prices autonomously; lack market info Large number of people involved with pricing Poorly-defined pricing structure & processes Large number of special pricing records Sales reps incented to maximize volume Recommended selling prices unrealistically high ERP system pricing module underutilized
© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
Distributor pricing waterfall
Perc
en
tag
e o
f li
st p
rice
© 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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Pricing analytics
Make order out of a highly complex, chaotic environment
3000 customers X 5000 SKUs = 15,000,000 combinations
How much pricing responsibility is delegated to the sales team?
Segment customers and products for pricing purposes
Determine item sensitivity
Design a business intelligence cube for your ERP system
© 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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Distributor pricing scatter diagrams
Customer Size
GT
M%
GT
M%
Customer Size
Desired orderly pattern Typical chaotic pattern
© 2009 Evergreen Consulting, LLC All RIghts Reserved Sacred Cows of Distribution™
Premiums
Discounts
Average Margin
Premium/Discount Cube
Margin %
Customer Size
Segment, Size, Sensitivity
DistributorPricing Architecture
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©2009 Evergreen Consulting, LLC
STRATEGIC PRICING MATRIX CHEMICAL PLANTS segment
margins for a sample SKU
VERY SMALL SMALL MEDIUM LARGEEXTRA LARGE
VERY HIGH 24% 21% 18% 15% 12%
HIGH 25% 22% 19% 16% 13%
MEDIUM 31% 28% 25% 22% 19%
LOW 33% 29% 26% 23% 20%
©2009 Evergreen Consulting, LLC
Matrix for each segment
Minnows
SmallMediu
mLarge
Whales
Mostsensitive
+4 +1 -2 -5 -8
More sensitive
+7 +4 +1 -2 -5
Less sensitive
+10 +10 +7 +4 -2
Least sensitive
+13 +10 +7 +4 +1
© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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BASE CASE
150 BPS 200 BPS
SALES$50,000,00
0$51,000,00
0$51,370,00
0
COGS$37,500,00
0$37,500,00
0$37,500,00
0
GM$$12,500,00
0$13,500,00
0$13,870,00
0
GTM% 25.0% 26.5% 27.0%
EXPENSES$11,500,00
0$11,700,00
0$11,775,00
0
PRETAX NI
$1,000,000 $1,800,000 $2,095,000
ROS% 2.0% 3.5% 4.1%
EQUITY $7,000,000 $7,000,000 $7,000,000
ROI% 14.3% 25.7% 29.9%
Profit Power of Strategic PricingProfit Power of Strategic Pricing
Frozen
© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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©2009 Evergreen Consulting, LLC
Upside for each segment
Minnows
SmallMediu
mLarge
Whales
Mostsensitive
More sensitive
Less sensitive
Least sensitive
© 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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About Gas & Supply
What are your pricing metrics? Customer base – size, segment breakdown Product lines – SKU count, vendors Activity – transaction volume, order size How many people involved in pricing decisions; how much pricing autonomy
Opportunities Improve pricing consistency – attack outliers Find your profit leaks: less visible items, freight recovery
Analyze segments Segment opportunities differ Set targets for each territory and help you realize your opportunity
© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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© 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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FAQs
Speed to results depends on how aggressive management is
Sustainability is dependent on management’s commitment
Strategic pricing is an exercise in analytics + change management
Up to 2 weeks of your staff time needed over 1-2 months
Gain-sharing or a fixed fee
© 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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Project team
Brent R. Grover – Managing Partner & Strategic Pricing LeaderNAW Institute Distinguished Fellow, CPA, 20+ years distribution executive, author
Kenneth G. Brown – Partner & Project Team Leader20+ years distribution & supplier sales and executive experience
Emily Martin – Project Consultant10+ years distribution executive experience
Jane Williams – Systems Analyst10+ years distribution IT programmer, analyst and IT manager experience
Marty Gawry – Project Consultant10+ years corporate project management experience
© 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™
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“We wrote the books on distribution
management.”™
Brent R. GroverEvergreen Consulting, LLC
29525 Chagrin Boulevard, Suite 214Cleveland, OH 44122
(216) 360-4600 ext.101