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Highlights from a SPA Strategy Seminar

Several times each year Strategic Pricing Associates hosts a Strategy Seminar designed to bring together distributors, manufacturers, service companies and industry consultants for an open exchange of ideas. Top executives from leading companies network and openly share best practices. A few executives not able to attend have requested that we provide an overview of these seminars, so we developed the following overview of our January 2013 seminar. We hope that after reading about the exchange of ideas and lessons-learned at this seminar you will consider attending our next seminar, on June 28th at the Bellagio in Las Vegas.

The Agenda is Diverse

The event consisted of presentations delivered by industry leaders (Modern Distribution Management Magazines president and publisher, Tom Gale, Saint Louis University's Innovator in Residence, Steve Epner, knowledge-based Distribution Expert, Frank Hurtte of River Heights Consulting and SPA's president David Bauders) and panel discussions by leading distributors representing the Electrical, Automation, Fluid Power, Plumbing, HVACR and other industries.

Creating a Culture based on Value rather than Discounting

Here are a few highlights from the panel discussion on driving company culture featuring half a dozen well-known distributors. We have identified the panelists by the industry they serve.

Electrical Distributor:

When we launched into the Strategic Pricing Associates model our style could be characterized as the Wild West. When it came to setting price there was little process. Salespeople pushed back with comments about their customers setting the price point. We had to ask ourselves; why was it one salesperson had a territory made entirely of customers insisting on cost-plus 20% pricing?
We drove change by establishing metrics. We measured deviations from the standard system price as well as the potential changes in gross margin revenue, assuming the seller followed the standard pricing. Using a series of weekly meetings, we pretty much dissected every deviation. We educated, trained and re-measured until we became a scientifically priced company.

HVAC-R Distributor:

We view pricing as a "contact sport". The conflict between discounting and solution selling just never completely goes away, but things have gradually improved. Before we instituted the SPA process, 28% of our system prices were overridden every day. After we applied the Strategic Pricing process our rate of system price changes decreased to approximately 7%, which is one fourth of its previous best.

Automation Distributor:

What's the power of one percent? On an intellectual basis, we all know the huge benefit our company would realize from a one percent margin increase, so we provide all of our employees with ongoing training which focuses on increased margin. I personally asked each member of our team how much money the company made and their answers were all over the map. After I showed them the very narrow margin we operate on - we're in a 4% or less industry - they started grasping the importance of a powerful scientific pricing architecture. We went even further and asked them if they felt it was fair to charge 50% gross margin on a $50 part from a tertiary supplier. We showed them how even at this "gigantic GM percentage", we were doomed to lose money. We've utilized SPAs services for over five years and we continue to see ongoing margin increases and improvements in our pricing culture.

Multi-discipline Industrial Distributor:

We started out in an environment where 75% of all sales were adjusted from the system price. There were problems with inconsistency, issues with margin erosion and concerns with the right kind of selling activities. In a short time the SPA process empowered us to change our company culture to one based on fair and consistent pricing.

The Journey from Traditional Pricing to the SPA Model

Later another group of panelists were asked about their journey from traditional distributor pricing to the Strategic Pricing Associates model of scientific analytics and process. The comments were remarkably candid and once more we identify panelists based on their core business.

Power Transmission Distributor:

When we got involved in distribution we had inherited two companies that were clearly losers. Tenacity is the name of the game. We instituted the SPA process and continued to build the companies both in growth, gross margin attainment and in bottom line performance... When we later sold one of the companies, we received $13M more than the previous shareholders in a large part based on our journey with SPA.

Electrical Distributor:

Through the use of Strategic Pricing, our total through-stock gross margin is up over 2 points for last year and this is our third year of using the program. Each year we find ways to run more business through the pricing cube and that point alone drives further success. What we discovered early on is pushback and resistance to our pricing process doesn't come from customers, rather it comes from our internal sales force. We have undeniable proof the system works, and this allows our salespeople to make more money, so they are getting behind the whole concept.

High Tech Distributor:

Let me chime in on the whole profitability and ROI thing. There is no greater payback in anything we have done in business than the investment we have made in implementing the SPA plan.

A Sampling of the Presentations from Industry Experts

While many would say the panel discussions were worth the price of admission (actually it's a free event), the SPA Strategy Seminar contained great presentations from experts approaching the industry from multiple directions.

10 Most Important Trends in Distribution

Tom Gale of Modern Distribution Management Magazine presented research data on the 10 most important trends in distribution in 2013; the first five are highlighted below:

  1. Uncertainty plays a role in our industry. The 4th Quarter of 2012 showed a slowdown across many sectors. Taxes, new regulations and hiring/retention issues drive a queasy feeling through the whole business sector and distributors feel the pinch. Even though most distributors are looking for a recovery in 2013, many believe uncertainty is the new reality. Holding a tight rein on inventory, expenses and acting opportunities with good ROI are the keys to long term success.

  2. A generational shift is taking hold in distribution. Younger employees respond to different management techniques. They don't want to wait for years to get involved in important initiatives. Adding their energy and knowhow to things like web presence and social media will accelerate your business growth.

  3. Distributors are facing a competitive shift. Technology, global competitors and new entrepreneurs are looking at our customers. Maintaining a good sense of why people buy from us and constantly measuring our relevance in the market are skills of the future.

  4. Vending machines are moving into distribution. Distributors installed over 21,000 vending machines in 2012. This is no longer a future issue, it's an absolute certainty.

  5. Changing channels - channel convergence is reaching a fever pitch as distributors look at opportunities outside their traditional products. Technology and the perception that new business can be harvested from existing customers has driven many companies to expand into adjacent lines of trade.

[For the rest of the trends Tom covered, read the article here: http://www.mdm.com/distribution-trends-2013-recommended-reading. There's a bonus as the article outlines 12 trends. You can also sign up for their daily industry Update email here: http://www.mdm.com/update-sign-up-header.]

Providing Real Customer Value

Strategic Pricing Associates president, David Bauders, presented thoughts around the topic of providing value.

Purchasing Agents work with three goals in mind: Buy from the best supplier, buy at the worst supplier's price and convince the best supplier they're no different than the worst. Is it any wonder our sales teams are often driven to a discount mentality?

Value-centric selling requires we truly develop our value proposition in as specific terms as possible. Ask yourself these questions:

  • Who are our competitors?
  • Why do customers prefer us over them?
  • Why and how is it better to be our customer than our competitor's customer?
  • How does our sales force communicate that message to the customer?

As business leaders we can't just assume our salespeople will somehow figure this out on their own. We need to provide our sales departments with the right talking points and the proper documentation to back up the argument.

Bauders went on to discuss the components of customer value, which ranges from impacting the customer's revenue stream to solving regulatory issues. Typically each impacted area carries a different degree of importance to the customer with contributions to the customer's revenue attracting a higher level of attention. Customers will pay a premium if your work brings them added revenue. The discussion culminated with David sharing his formula for measuring seller value to the customer.

But we couldn't share the Best Part

While the ideas exchanged during the presentations and panel discussions are valuable, an equally valuable part of these seminars takes place during informal networking with other industry executives. What's more, the panel discussions guide you to precisely the right kind of people to give you "down in the trenches" guidance.

If you missed the Seminar

If you were unable to create space in your schedule to attend the last seminar, there is another opportunity fast approaching. Strategic Pricing Associates is sponsoring a similar seminar at the Bellagio in Las Vegas on June 28th. If you want to learn more, contact Sheri Morford at 216-455-1544 or via email sheri.morford@strategicpricing.com .