Last updated: B2B e-commerce pricing: How digital is transforming wholesale distribution

B2B e-commerce pricing: How digital is transforming wholesale distribution

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The traditional marketing mix of almost every B2B organization is built around the 4Ps – product, price, place, and promotion. Simply put, price is “the amount of money expected, required, or given in payment for something”. Although the topic of B2B e-commerce pricing isn’t typically seen as glamorous or exciting, it can mean the difference between a profitable and unprofitable year, or even more significantly – a company’s ability to succeed or fail.

Wholesale distributors are challenged with managing great complexity in their day-to-day operations and commercial decisions. Many distributors are responsible for hundreds of products and customers around the globe and evolving competitive dynamics including increasing threats from non-traditional online competitors.

These challenges make it difficult for distributors to thoughtfully set, manage, and execute pricing strategies to meet profit and loss (P&L) objectives while simultaneously enabling sales representatives to win deals.

To speak on the topic of B2B e-commerce pricing, I sat down with Lindsay Duran, Chief Marketing Officer of Zilliant.

B2B e-commerce pricing: Digital is changing the game – and smart distributors are changing, too

Q: Lindsay, tell me a little about Zilliant and your role.

A: I’ve been with Zilliant for almost 9 years supporting our marketing and sales organization with one underlying goal – to make a positive impact. Zilliant helps B2B organizations reimagine how to tackle sales and pricing challenges through smarter software and data science.

Distributors rely on our expertise and cloud-native platform to help them achieve the highest ROI, best customer satisfaction, and the shortest time to value. When it comes to price, there is really no time to waste.

Q: I appreciate that – and now more than ever, pricing is the most powerful lever for distributors to affect their business outcomes. Where do pricing mistakes most often occur?

A: You’re right – the slightest change in price can have a dramatic trickle-down effect on profit. Most pricing mistakes occur because sales people lack market-aligned price guidance to help them make the best possible decisions, and pricing teams lack the toolset to generate that guidance.

As a result, the average B2B distributor is losing 0.6% to 5.2% of profit each year due to misaligned market pricing and 1.4% to 6.5% because of inconsistent pricing practices, based upon benchmark data.

Every year, the average B2B distributor is losing .6-5.2% of profit due to misaligned market pricing and 1.4-6.5% because of inconsistent pricing practices.

Get the Global B2B Benchmark Report.

Misaligned pricing happens when prices don’t rationally align to customer size, order size, product value, and other key dimensions. It can also refer to situations where pricing doesn’t keep pace with cost changes. This can open organizations up to great risk given the unpredictability of goods and evolving prices in a global crisis.

Similarly, inconsistent B2B e-commerce pricing practices are largely driven by sales or commerce platforms transacting sales below a minimum margin threshold or exhibiting price grooving behavior.

For example, a sales representative rounding prices to the nearest dollar or offering discrete margins. It may sound minor, but it’s actually the opposite. Just a 1% price decrease will require the distributor to increase their sales by nearly 6% to achieve the same outcome.

Q: So, in essence, prices are failing to align with market costs or prices are being too far discounted. These challenges seem fairly straight forward, so why do they occur so often?

A: Well, clearly no one sets out to make these kinds of pricing mistakes. Pricing in wholesale distribution is particularly a challenge due to the acceleration of external pricing triggers coupled with outmoded internal processes that can’t scale to meet the moment.

Making matters worse, pricing teams are often juggling the variety of pricing triggers manually, using spreadsheets, without the technology toolset and ability to analyze a massive volume of data.  Distributors often find themselves falling behind the market which leads to leaking margin. And these days, no one can afford to leak margin.

Q: And these days, no one can afford to leak margin! Now I understand wholesale distributors leverage a variety of price modes to arrive at a price for a given customer. Can you walk us through the major price modes practiced within wholesale distribution?

A: Absolutely. A company’s price modes, also called pricing architecture, each have their own place but tend to take on a life of their own out in the field to remain competitive and appease customer expectations.

The four main price modes within wholesale distribution are:

  1. List Price – This price mode represents the sticker price of inventory and often acts as the company’s reference point for discounts. Business is rarely transacted at this price.
  2. Matrix or System Price – This grid outlines groups of similar customers and products that are assigned to specific price matrices.
  3. Customer-Specific Prices – This price mode category can be used to articulate customer-specific price exceptions and customer contracts. An example of this would be providing alternate prices for your largest and most valuable customers.
  4. Override Prices – Representing prices that are deviated from list or matrix in a one-off, negotiated capacity.

Q: It sounds like each of these price modes can bring about their own challenges. How can wholesale distributors find the best price mode to meet the needs of their customers and the variety of internal constituents – sales, finance, etc.?

A: Well, unfortunately it isn’t that easy. First, individual price mode could never meet the needs of a wholesale distributor in today’s competitive landscape where non-traditional online competitors continue to encroach. Solving these challenges requires investment in people, processes, and technology.

Here’s what each unique role within a wholesale distributor needs to successfully build a pricing strategy:

  1. Pricing teams need intelligent tools and reliable data when setting prices for each price mode so that distributors can begin to use price as a strategic lever to improve financial performance.
  2. Sales representatives need market-aligned price guidance to make the best possible commercial decisions.
  3. Customers have more resources than ever at their fingertips and expect price transparency and consistency, regardless of the sales channel.

Q: What advice do you have for wholesale distributors who are just embarking on more sophisticated pricing strategies?

A: Don’t be afraid to get started. Making changes to pricing practices can feel like a daunting task, and companies may hesitate for fear of the change management effort required. However, distributors who have recognized that they are unnecessarily losing margin, and in some cases, losing volume to overpricing, and embarked on a pricing journey are able to reap the benefits relatively quickly.

The data to get started exists in ERP systems. Even the slightest improvement in price realization can have a significant impact on margins. Take a look at this video from Metro France to see how and why the foodservice distributor made the decision to transform their approach to pricing.

95% fewer booking errors.
Predict changes in buyer demand.
Better B2B customer engagement.
Breaking the boundaries of wholesale distribution
starts HERE.

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