International Wholesale Distributor
EnterBridge worked with one of the leading specialist plumbing and heating distributors operating in the United States and Europe to develop a custom pricing analytics solution. The company distributes products through wholesale and retail outlets, employing approximately 2,000 sales representatives, operating out of more than 500 branch locations. The company works primarily with local contractors to supply products for repair, maintenance, and improvement of homes and businesses. The challenge the company faced was a lack of pricing consistency across all their outlets and different brands. Discounting was often done by sales reps without an understanding of the impact on margins, and customers were often confused about the pricing approach, which created a lack of trust, as pricing could vary substantially from customer to customer and was done primarily at the discretion of the sales rep or manager.
To address this issue, they first needed to establish organizational ownership and accountability for solving the pricing problem and created a new pricing director position. The pricing director was responsible for looking at pricing, pricing strategy and developing a more consistent approach that included customer segmentation and advanced analytics to create pricing parameters to guide sales rep pricing behavior.
The first step in the process included a customer segmentation effort that involved large data sets sitting in legacy systems across different business units. This data included transaction data, product, supply support, and customer pricing history. The segmentation created groups of similar customer types with accompanying price bands that relied on factors such as location, company type, and size.
A pilot program was set up in one location to test the new pricing algorithm in a live setting. Instead of a single list price, sales reps saw a range of prices along with indicators—using a traffic light metaphor—showing red, yellow or green to indicate whether the price was out of bounds, acceptable, or ideal. The pricing bands used to produce prices quotes are displayed on the existing terminals so the reps see the approved price ranges and select the price to offer the customer. The selected price then populates the order form. The reps were trained to start with “green” as the initial price point, and they can negotiate down from that point, while not going below “red.”
With the solution now rolled out across the company, managers can now use aggregated metrics to monitor branch and individual rep pricing behavior. They can look at particular reps that are consistently pricing in the red category and address the issue with them through additional coaching and training.
The company is now able to compare year on year margins and sales volumes and determine if either or both are improving. With the price bands in place, the sales reps have clearer guidance and more confidence and trust in their price recommendations. The reps feel like they are now armed with as much information, if not more, than customers.
Building the rep’s trust and confidence was a major objective for the company and a critical part of the behavioral change the company was hoping to see. The expectation was that more consistency and trust in pricing from the reps would translate into more satisfied customers through greater transparency and uniformity in pricing. In addition to the margin and sales volume metrics, the company is now using the Net Promoter Score methodology to track customer satisfaction over time, and have already seen score improvements as a result of the new pricing approach. They look to build on this momentum to drive even greater satisfaction, sales, and margins.