© 2010 evergreen consulting, llc all rights reserved strategic pricing for distributors™ 1 gas...

© 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

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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

brent@evergreen-consulting.comwww.evergreen-consulting.com