Event Recap: SPA Strategic Pricing Conference in Las Vegas, NV May 1, 2014
By Frank Hurtte
We have compiled a few highlights, comments, and data points shared by distribution and manufacturing leaders as well as industry experts for those of you that were not able to attend this informative event.
As a senior advisor to over 50 distribution companies, the Strategic Pricing Associates (SPA) Strategic Pricing events are eye opening and always give me pause. Further, the no cost sessions are focused on distribution and manufacturing leaders' concerns and conducted in a way that encourages networking. If you haven't been to one, I encourage you to do so.
Presentation: Market Trends in the Current Economic Environment
The following are some key insights for you to think about that were shared by Tom Gale, President of Gale Media and Publisher of Modern Distribution Management magazine, who shared data from the latest MDM/NetSuite Wholesale Distribution Outlook Report.
2014 appears to be shaping out as a pretty good year for distributors. According to the survey respondents nearly 66% of the Distributors surveyed are optimistic about the coming year. And, they are investing in technology. The investments will rev up your own thoughts on this whole growth thing.
Other data points from the report:
- 40.7 % are investing in Customer Relationship Management (CRM) Systems
- 40.1% are investing in E-Commerce
- 29.7% are investing in Mobile Apps for Sales
- 23.3% are investing in Pricing Process
- 20.9% are investing in Cloud Computing (SaaS)
- 15.7% are investing in EDI
- 15.1% are investing in Demand Planning
- 13.4% are investing in Warehouse Management Systems
- 9.3% are investing in Finance/Accounting Software
If your competitors are laying out this kind of money, how will it impact your world?
Presentation :Driving Change that Matters in a Recovery Economy
David Bauders, President and Founder of Strategic Pricing Associates SPA, made an offhand comment during his presentation that struck a chord with me. As a matter of fact, it continued to resonate several days later as I was preparing this article and thought it was worthy of including. David went on to explain his comment:
"In pricing, you don't have to be perfect to win..."
The SPA pricing process impact drives small slivers of gross margin improvement. These come from products with less visibility in the market. Sailing under the radar, obscure product categories sold to tiny and small customers can generate additional gross margin. Many times the gross margin impact is upwards of 5, 6 or 7 points on affected revenues. Because such products carry a true cost-to-serve that is relatively high (slower inventory turns, obscure vendors, less favorable terms, higher handling costs), it is not only feasible to price them at higher margins, it is necessary.
An effective pricing structure takes you away from the "cost plus" mentality. Your company's process begins to take things like hassles with an obscure supplier, time spent locating one time buys and non-stock/special order transaction costs into consideration.
The SPA pricing process prompts thought in customer segmentation. It makes sense for tiny customers buying a few items to pay more than your largest customers. Without a rigorous pricing process, the likelihood of the smaller guys paying the appropriate increase is simply random.
Early in the pricing process the typical distributor drives just 40 - 60% of their business through the SPA pricing cube (the actual system prices set using structures developed by analyzing invoicing data from your own business). Yet, the margin increases for this piece of business, which run in the range of a six point gain, total a 2 point gross margin gain for the business as a whole. The pricing process isn't perfect, but the gains are real.
Reports back from long-term SPA clients point to continued gains year over year as the management team continues to tweak and perfect their use of the pricing cube. The leadership teams of the most successful SPA clients continue to define and reinforce the system year over year. It's a process and as the old saying goes, "Process is about progress not perfection."
Along the way, a two point increase in margin sounds like a win for wholesale distributors.
Panel Discussion: "Change Management and Sales Culture: Execution on the Drivers that Matter"
Normally, the catch phrase is, "What happens in Vegas stays in Vegas." But this time, we thought we would share a few words of wisdom that were shared during one of the panel discussions at the event. The panel consisted of executives from four high profile wholesalers representing the Electrical, HVAC, and Plumbing Supply industry.
SPA's David Bauders posed a question to the group; here are comments in response to the following question:
"In pricing, you don't have to be perfect to win..."
"Conversations with a number of SPA clients in our industry completely dispelled nearly everything I believed about how pricing works. One of the jokes in our market went like this: If you need three quotes on a project, just call us three times. Sadly, the joke was on us because it was mostly true."
"During 2004 through 2006, pricing for us was just like the "wild west" with everybody doing their own thing and very little management involvement. But, it was the good wild west because business was robust. In 2008, we fell off a cliff and it really put the "hurt" on us. When we started studying SPA it opened our eyes to what pricing could be."
"We tried to build a pricing system internally and after a couple of missteps, Epicor introduced us to SPA. Here's what has changed, we focus on education, value and our worth to customers rather than price negotiations. There's a world of difference in the two approaches."
"We were an extraordinarily average company. Our margins were poor and pricing was one of our weakest areas. But our CEO wanted to be the leader of a great company and we started on a journey. Rest assured pricing is a never ending journey. We now understand this must be a major focus in all our plans."
We left out the names of the companies in this article, but at the strategy seminar each of these panelists shared the wealth of their own experiences with the group as a whole and in a number of individual sidebars. Once more going back to the panel discussion, here are comments in response to the following question:
How much real customer pushback did you encounter?
"The pushback we experienced was nearly all internal not from customers. Sometimes we do hear from customers but mostly it's when we make a mistake. And, when that happens, we fix the error and continue."
"We really can't report any significant customer pushback, but we are constantly pushing our sales group. We feel it is our job to support our sales effort. The reasons we hear from our sales team comes from the heart and not from the head. They have anecdotal what if stories, we provide them with real data and metrics. They are coming along but the whole thing is a process with continual improvement from sales."
"We didn't get any pushback from customers and we have really minimized the internal pushback through education. We spent a great deal of time helping the sales team understand exactly how the process works and why the right kind of pricing is important for our company's future… Based on SPA's recommendations we implemented pricing process with our tiny customers first. After a couple of weeks all we heard from the field was the sound of "crickets chirping". After that experience we implemented the process with 100% of our customers. Again, we heard nothing but silence and "cricket chirping" in the distance."
"Our pushback was 100 to 1 from the internal folks... The only times we have ever heard any issues from real customers was well into the system when managers became too aggressive in order to meet departmental goals."
Ah, something else to ponder...
Imagine how you too might benefit from Strategic Pricing Associates 21 years of experience. Recount the value of learning from others just like you who have benefited from the SPA process and technology. Ask yourself, how would a two point improvement in gross margin impact our bottom line?
As luck would have it, SPA will be conducting a "Mastering Strategic Pricing in a New Economy Seminar" at the Hilton O´Hare June 6 in Chicago, IL. It is not too late to register, click here to learn more about the event.