An Interview with Dolores Bauders
Many people don't realize there are two pricing experts at Strategic Pricing Associates named Bauders. Articles, videos, and promotional pieces often mention President David Bauders. Clients and associates of the SPA organization understand the work of Vice President and COO, Dolores Bauders. Only a few folks from outside this group have benefited from Dolores' insights, until now.
Both members of this Bauders' duo carry the credentials of analytical price process expert. Both have been involved in this emerging science for over twenty years. Both have evaluated the interworking of hundreds of wholesale distributors and manufacturers. They've seen the good, bad and ugly. And based on the fact they are married, one can only wonder the direction of breakfast conversations about price strategies.
I had a rare opportunity to interview Dolores Bauders recently. Her comments provided remarkable insight into the mechanics of a pricing process. Over the past few months, I have interviewed clients of SPA in dozens of locations. I was impressed by the results driven by the SPA process.
The following are a few observations from the lady who oversees so much of the operation.
Everybody has a Magic Gross Margin Number
According to Ms. Bauders, "Over the years our team has seen the price-related interworking of over 350 distributors. I honestly cannot think of a single company that didn't have some "Magic Gross Margin Percentage." It varies from company, sales cluster or branch office but some percentage - albeit 20, 25, 30 or something else - seems to raise its ugly head."
The key to this phenomenon lies in either not trusting the "system price" or simply assuming that a 20 percent (or any other number) is standard in your market place. Often this magic number will be applied to all customers regardless of size of sale, business type or long term potential. As more distributors expand into adjoining spaces (electrical distributors into automation, power transmission distributors into motion control, fastener houses into mill supplies, and many more,) the opportunities for losing margin potential increases. Not knowing the proper price levels for new technologies, which are often higher than their historical products, Distributor Salespeople often extend the magic number to wider ranges of product.
The Magic Gross Margin Number under the Microscope
Any logic around the magic gross margin percentage brakes down when you consider a couple of points.
First, when competing against a distributor selling another manufacturer's product, the distributor buy price is rarely the same. Most of these supply partners are aware of the end user, OEM and Contractor price levels of their competition, sometimes they even try to match the competitor's level. But with countless variations in channel philosophies at the supplier level, the chance of competing wholesalers receiving exactly the same cost is close to zero.
When the product in question comes to competing distributors from the same supplier, the magic gross margin percentage still breaks down. Here's an insight from Ms. Bauders: "We work with both manufacturers and distributors. In our work, we observe the same types of scatter plots on pricing levels coming from companies on the manufacturing side of the channel. The pricing level to distributors varies just like the pricing level distributors offer to their own customers. Mark-up pricing using a magic gross margin percentage doesn't reflect reality."
Perhaps this point illustrates the concerns many manufacturer sales managers have with providing significant "in-to-stock" prices for distributors. Countless managers have shared their private concerns that special prices awarded to distributors end up being sacrificed to the market because of poor pricing practices.
Mark-up versus discount pricing
Attend any distributor association meeting and you are likely to overhear discussions around one of the longest running industry debates; which is better mark-up or discount pricing. For those of you who might be new to the industry, here is a quick description:
Mark-up Pricing - The practice of adding a margin to the distributor's cost.
Example: The distributor receives a price of 100 dollars from their supplier adds 40% Gross Margin and ends up with a price of $166.
Discount Pricing - The practice of subtracting a discount from a published list price.
Example: The distributor has a set list price of $250. They provide the customer with a 30% discount ending up with a selling price of $175.
With Dolores' view of literally hundreds of wholesalers applying a scientific pricing process, who might better comment on this ongoing debate? We point blank asked the question: Which type of pricing process works the best? Here is her response:
"The whole mark-up versus discounting issue has become a bit of a company culture issue. We see both types of wholesalers. There's no real rhyme or reason to how they sort out. Both types are found in every line of trade. But, as a group, the discounters typically end up being more profitable. The cool thing is our process helps both kinds of companies generate higher gross margin dollars."
Overcoming cultural issues is a critical component of establishing a new process. We asked Ms. Bauders to give us her prospective on what it takes to bring companies from either side of this cultural divide onto the Strategic Pricing Associates process. She commented, "We have been part of hundreds of process journeys. We've learned to tailor our approach to the culture of the organization. We're talking subtle differences, but the little stuff counts in building confidence, comfort and ultimately results."
The Strategic Pricing Process
Dolores' comments on company culture illustrate how Strategic Pricing Associates is completely unique in their approach to helping clients. SPA wraps expert guidance, training, and start-up assistance around a scientific algorithm designed to sort out the millions of pricing permutations present at the typical wholesaler.
Because of her hands-on work with the operations side of the business, we asked Ms. Bauders to tell us more about the actual algorithm. "You must understand, this is a complex piece of software. We originally launched the first generation of the software twenty years ago. Since then, there have been a lot of changes in the way business has been done for both our clients and their customers. Those changes have been rolled into the algorithm. Today's business climate continues to change the best practices in pricing analysis. We have a team of people who are constantly enhancing the system to drive better value to our clients. The nature of our clients' businesses has led our work in developing metrics and dashboards to assist in getting the most value from the process."
A final question
The Strategic Pricing Associates process has worked for so many distributors in a wide variety of trades. The Electrical, Mechanical, Heating and Cooling, Mill Supplies and Plumbing are areas where SPA's work is well known and appreciated. We asked Dolores to give us an idea of an industry where SPA has worked but is not listed. Here's her answer: "Remember when we started the conversation and you said you liked a glass of wine after a tough day at the office? Well, depending on where you bought it and the brand, SPA may very well have assisted in developing a pricing process."
We'll raise our glass in salute. Thanks Dolores.