The Three Islands of Online Pricing: Practical Online Pricing Advice for Distributors



Learn some practical ways to price better online in this Modern Distribution Management spotlight video, sponsored by PROS.   

Although we recorded this video before Coronavirus impacted your outside sales teams’ ability to make calls and service customers face-to-face, we feel it's even more relevant for today's landscape. Now more than ever building a process to present competitive level relevant online price is critical. For many customers their ability to order online with their distributors is critical during this disruption.  


In this video, learn key pricing tips for: 

  • On Account Pricing Structure – For on account customers who sign into their account to access their pricing, see the key structure that can deliver a seamless pricing experience that is similar to when they call into your team. 
  • Non-Account Customers – For customers who don’t have an active account with you, developing online pricing that creates orders is very difficult for many distributors. 

    Understand how just using system price is costing you orders and critical accounts who you are missing an opportunity to grow sales with.

    Build a proper price profile system that uses your key pricing data to build a competitive (not the lowest price) that delivers key orders and more accounts to put into your sales funnel. 

The current face-to-face sales interruption makes developing online pricing that drives interactions and orders more critical than ever. Need help managing your online pricing strategy through COVID-19? Request a Free Consultation With a Pricing Expert
 

Highlights

[05:00]: Online Pricing Island #1: On Account Customers
[09:26]: Online Pricing Island #2: Non-Registered Accounts 
[14:00]: Online Pricing Island #3: Registered Account – No terms Account
[16:14]: Practical Steps to Take Towards Better Online Pricing  

Full Transcript:

Richard Blatcher: Welcome everybody. I'm Richard Blatcher from PROS and I'm very delighted to be here with John Gunderson, VP of analytics and eCommerce. And this is an episode as part of a Modern Distribution Management video spotlight series. I'm very excited and honored to be involved in this series, John. And this episode we're going to specifically talk about how to improve online pricing because PROS is very excited to be involved in sponsoring the initiative that you have around transforming your 2020 business model. And you're going to in this episode talk a lot more deeply about how to improve that online pricing. But you use this really interesting concept around the online Island. So maybe you could talk in a little bit more detail about what you mean by that and then we can move into some of the specifics that you're putting around this program. ...

John Gunderson: Yeah. Well, thank you Richard and it's great to have you here. Really in my career as a distribution pricing professional, the hardest thing to do was price online. You have a whole system set up for pricing for your people, your associates who put in orders, but when you go to online pricing, it's a real struggle because for the first time ever there's other prices that are online that you got to deal with. So what we're going to talk about in this spotlight series is the islands that you have your pricing in today. So most distributors that I've worked for and I get a chance to work with today, they have a pretty good system set up for their, what many call B to B customers and when I'm going to say B to B in this episode, I'm going to refer to those customers that are on account. 

John Gunderson: They've got an account with your credit department, they're your biggest customers. In most cases, distributors have a pretty good system of, I go in, I sign in, I get behind a firewall and I can access the pricing that I've agreed with you on. So I can see the pricing that I might see if I call into the branch. So I can get my price profiles a customer. Most distributors have that down pretty well where a lot of distributors struggle is for the person that finds them on Google or is coming in or that small cash customer that's not on account. A lot of distributors I work with call that B to C customers. It's a misnomer. It's not a business to commerce or consumer type customer. But since they're not on account, a lot of them call them B to C. So for this discussion, I'm going to refer to him as B to C, but really think of them, they're customers who may buy from you or may find you online but they don't have an account with you. 

John Gunderson: So most of those distributors that I work with really do not have a sign in tool. They can't get behind the firewall, they can't register. So they're on a site on the front end and they're searching for product and maybe they're finding a fitting if you sell fittings or maybe they're finding a wiring device if you find electrical, if you sell electrical products. But for the most part, most distributors I work with, they just go grab that system price, which oftentimes is the highest price that they have. 

John Gunderson: And they're shocked that that customer goes, "Well, that's too high," and leave. So what we're going to really talk about today is ways to improve that B to C pricing experience and come up with a B to C hybrid model that takes in some of that intelligence from what other people are pricing at and helps you build a system that when they come in and look at that fitting, you actually make really good margin on it, but then they purchase it. And then think about all the small customers that when they do that, you may be available to identify and make bigger customers. So, that's really what today's session is going to be completely about. 

Richard Blatcher: So it really reduces wrong prices, missing prices, incorrect prices, reducing the world of overrides, which a lot of distributors live in. So why don't we dig a little bit further into some of the components of the program that you're putting together? 

John Gunderson: Yeah. 

Richard Blatcher: So John, this is really about the three islands of online pricing. So maybe you could dig deeper into each of those islands and some of the effects and the improvements that can be made by approaching the philosophy that you're talking about. 

John Gunderson: So let's start with the most common use of a website by a B to B distributor. I'm going to talk about sign into the account on account customers. So for the purposes of this discussion, we're calling that B to B customers. So these are accounts that are doing business with you at the branch level with your inside and outside sales team that have an account set up with your credit department. 

John Gunderson: Usually distributors have this process pretty well defined on their website and as you can see, they set up the following hierarchy. When the customer comes to the website, they go up to the right corner, they click sign in, they sign in their password. When they go searching for products to put in the basket or to make orders on, they get this type of pricing system. So most distributors have it set up in a three step process. 

John Gunderson: Where if the SKU is priced on a customer specific pricing agreement, a CSP or a contract price, the system will pull SKU price immediately. So that negotiated contract price will appear when they're searching for it. For SKUs that aren't priced, they go to step two where all remaining unpriced SKUs, they're pulling from a price profile if you have it, if it's attached. So for example, when I was in construction supplies, we would set up a contractor one type price profile that we included all the SKUs that we thought a big contractor would buy. If you have a customer tied to a price profile, it will then go from CSP to price profile. 

John Gunderson: Then if it goes through those two steps and the SKU is still unpriced, the default is step three where all remaining unpriced SKUs pull from the system price. So this three step process allows a customer to come in and have a seamless experience that's similar to the experience they would have when they call into the branch. They get their negotiated price first, they get their price profile second. If it's unpriced, they get the system price. This delivers a good consistent B to B pricing experience for your sign in accounts. Most distributors do a good job of this and it's pretty straightforward. 

Richard Blatcher: So John, we've looked in detail about the on account as distributors would know. That's the first Island. So now we want to transition to the second island, which is really a lot of distributors, none of them as a B to C, which is a little bit of a misnomer, right? The non registered, the non account as they would call it. So what are we going to be digging into now? 

John Gunderson: Yeah. I mean really we're talking about the most problem island for a lot of distributors, that B to C Island. It's really like an episode of Survivor where you're stuck on it and you're trying to be the last person alive coming off the island. It's just something the distributors really struggle with because they oftentimes view that customer, the non account customer as, "I really don't know how to price them." 

John Gunderson: So everything I show, I'll just put system price out there, which for almost every distributor I work with is the highest price it's list. And that list price just doesn't bring people in. So if you're selling fittings and somebody comes in and sees your list price, the chances of them abandoning that search and buying from you are incredibly high. 

Richard Blatcher: So this is one of the biggest islands of challenges, but also the biggest islands of opportunity. 

John Gunderson: It is the biggest island of opportunity. 

Richard Blatcher: Right. 

John Gunderson: And think about distributors that have been list down, so that list down pricing distributor. In my career, Grainger has always been list down. You used to get out the Red Book, you'd see the list price, you'd call the branch, they'd give you a discount off that. So Grainger, up until two years ago, only showed list pricing online. So they had that B to C approach for everybody. So even the mighty Grainger has changed that approach. They do not have a B to C approach online anymore. They have what I would call a B to C hybrid approach, which we're going to talk about later in this session. But if Grainger has had to change your approach, I would suggest you should probably change your approach also. 

Richard Blatcher: Well, let's look into some of the details and some of the recommendations that you have. 

John Gunderson: Now, let's move on to distribution island number two. This is the tricky part, the one that distributors struggle with. This is the non account non-registered accounts. Many distributors call it B to C. it is not a business to consumer customer, but distributors I've worked for and a lot of them that I work with, call it B to C because there's a perception that a lot of these are consumers coming in to find a product. But for the purpose of this discussion is just accounts that are coming to your normal website that do not have sign-in privileges that are searching for products. Where distributors struggle is almost all the time they only price system price on the SKUs that appear. So think about it this way. It's grabbing the list price and it's putting it out there for a three quarter inch fitting. Now this is your list price, not a competitive price. 

John Gunderson: And what ends up happening is you have people search, find the product, sometimes have to put the product in the basket before even a price appears, but then when they look at the price, they go, "Well wow, that's way too high. I can't buy that." So the missed opportunity for many distributors here is they have a lot of traffic comes in searches for a SKU. It never turns into an order because they don't have a price profile, they don't have any kind of competitive price level. And what we're talking about on this call is how to really change your B to C pricing. 

Richard Blatcher: So you've talked about the account, the first online island, and then our Survivor Island, the non account, the biggest island of challenge and opportunity. But there is a third and that's a really interesting one. It's what you call the hybrid, right? So maybe you could talk a little bit about what you mean by that third island, that hybrid customer or prospect. 

John Gunderson: Yeah. And it's both, right? It is a prospect, but they're also existing customers. I think if you can develop this Island, it's the best way for you to grow small accounts and really grow your top line sales. So what I call the B to C hybrid island really requires a partner because you've got to have a partner who can see what's being sold on an item by item basis. What's a competitive price so that you can then take that variable into your pricing system and come up with something beyond list. 

John Gunderson: I mean we talked about earlier, that's really what Grainger is doing today. They've got a B to C hybrid approach and that is the approach that can really unlock profits for your business and really improve your online channel. 

Richard Blatcher: But this is all linked to optimizing, serving up great experience, the right price of the right products to the right customer at the right time. 

John Gunderson: Yep, absolutely. And if you're running a website today and you do not have proper B to C pricing or worse yet, if you've got price not found or call the branch for pricing, your cart abandonment rates are going to be really high. And it only takes a prospect potentially just one visit to come in and say, "Oh well I can't even see a price or the price I do see is double what I can find elsewhere." That's a missed opportunity for you because that online inquiry may be a very large potential account for you. And I think that's a big part of what distributors are missing. So if you've got high cart abandonment rates, it probably is tied to this problem. So what we're going to talk about today is really how to do a B to C hybrid approach working with a pricing professional like PROS to really build a more relevant online price. 

John Gunderson: Don't think of it as the lowest price. You don't have to be lowest to win. You should be able to build a pricing system that gives you margins similar to your regular business in many cases higher, but also drive sales by drive prospects into your sales funnel. I think today as a distributor, you have to unlock this channel, because what's really changed is from where I started my career 20 years ago, customers are calling on you for the first time. 

John Gunderson: Before the internet, the only way a customer called on you was through the phone or you went out and saw them. But today, every online inquiry you need to think of it as a call on you. So every online inquiry is an opportunity to sell them something. And if you have a system that takes the online inquiries and makes them leave, you've missed that opportunity. 

Richard Blatcher: Well, let's dig into that third Island, that hybrid Island. 

John Gunderson: The third pricing island is what I like to call a B to C hybrid. It's not Survivor island like we referenced with B to C where it's just pulling system price, distributors that are really taking share online and growing small accounts and having people buy after a Google search are really taking this approach. This hybrid customer approach for B to C really lets you follow these two steps. 

John Gunderson: It pulls the SKUs from price profile. Probably not your lowest price profile, but many distributors are setting up an online price profile where it's a competitive price. It's not your lowest, but it's enough to get them interested and create transactions. So great distributors right now today are really building extensive price profiles. So there's a very limited number of SKUs that are unpriced that come from the system. So the more price profile SKUs you can have, the better you have a chance of growing your business here. 

John Gunderson: If you can accomplish this, your abandoned cart will drop and your customer acquisition will improve. And this is really difficult to do without a pricing provider because there's so much dynamic pricing going on outside your world that you really need a system that allows you to bring in internet prices that are out there that you can then benchmark your pricing against. 

John Gunderson: The key data variables that you have to consider when you're setting your online pricing, especially if you're moving to a B to C hybrid approach are you really need to consider using a competitive pricing tool, an online pricing spider. There are a myriad of choices out there to choose from where you can put your SKUs in a system and have a spider go out and try and find competitive pricing on that SKU number that you have in the system so that you can get an idea of what XYZ website is selling it for. 

John Gunderson: And you can get competitive intelligence on where your price stands versus the online price. Doesn't mean you necessarily have to lower that price, but it does mean that you can make some good decisions based off what's actually happening in the internet, on Amazon, all the other choices they have. The other choice you can make is to find pricing that is between your expert level, your target level or your floor. So many pricing providers like PROS and others have an expert level at the SKU level. So think about it this way, it's the desired optimum margin level that they would like to get on a three quarter inch fitting. That's called expert. Target is where they'd like to be as a business. So that would be for big customers, small customers. It's what I would call a competitive price. It's below expert. And floor is a price that the distributor doesn't want to sell below. 

John Gunderson: So if you can bring those variables in it and make sure that you've got as many target prices in your online profile as possible and make sure you don't have any pricing below the floor, you can really drive a lot of traffic to your site and win. The other thing I recommend is to use velocity as a key variable in how you do pricing. So every distributor has an "A", "B", "C", "D" SKU process where your "A" SKUs are a small number of SKUs, but they're your highest sellers. Many view, this is the top 30% of my sales, which come from a really small set of SKUs. So on a 50,000 SKU distributor, the SKUs that make up 30% of their sales may be less than 500. Those would be titled "A". Then your next highest moving SKUs are "B" and "C", and "D" are your slowest moving SKUs. 

John Gunderson: If you can look at your "A" SKUs, those that are highest moving and make those as competitive as you can versus the online prices that are out there, then you can really drive a lot of people into the funnel. You don't go as low on your "B"s, you really don't discount much on your "C"s. You may not discount at all on your Ds. So if you can follow the same pricing dynamics you have as a business online using an "A", a "B", a "C" and a "D" pricing structure, you will win. 

John Gunderson: The last thing that I think you really got to do is you have to build an online price profile for B to C customers. You have to take all the intelligence we talked about, use the variables of the spider, the expert target floor, the "A", "B", "C", "D" process and build a competitive price profile for people that are coming on the web to find your products. If you can build that price profile with the partner like PROS or yourself, you can win online. 

Richard Blatcher: So John, that was a fascinating video spotlight series about the online islands, the challenge of online price. So thank you for walking folks through that. 

John Gunderson: Thank you. 

Richard Blatcher: We'd encourage them to get on that journey very quickly. If you're already on the journey, refocus and apply some of those practical steps and approaches that we both talked about. And if folks want to get in touch with us personally, we'll put our details on this series with our email addresses, and of course we have mdm.com and pros.com. So we'd encourage people to get on that journey and get in touch with this. And John, thank you again for, for allowing me to host this a video spotlight series. 

John Gunderson: Yeah. Thank you, Richard, and get on the journey today. And please, if you've got any questions, we're all ears. Contact us using the information below. 

Richard Blatcher: Rblatcher@pros.com 

John Gunderson: John@mdm.com 

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