In business, pricing is a pivotal element that links sales, marketing, and profitability. In wholesale distribution and private equity-backed ventures especially, a well-crafted pricing strategy can make or break profitable growth. However, mastering pricing requires a delicate balance between art and science, blending intuition with data-driven decisions to achieve optimal results.

The challenge of pricing optimization

Traditional approaches to pricing often fall short of expectations, leaving businesses floundering with margin improvement goals. One of the core issues lies in the need for more transparency surrounding pricing factors. Without a clear understanding of the elements driving pricing decisions, sales teams face anxiety and resistance, hindering effective implementation.

Empowering sales teams with transparency

Transparency is critical to overcoming the challenges of pricing optimization. By providing visibility into pricing factors, businesses empower their sales teams to engage in pricing discussions confidently. Rather than focusing solely on higher margins, which can create anxiety, reframing pricing strategies as tools for empowerment shifts the narrative and fosters trust with customers.

The importance of education

Education plays a crucial role in equipping sales teams with the knowledge and tools to navigate pricing discussions effectively. In fact, a recent pricing study found that among the B2B companies surveyed, those that had made an investment in advanced pricing capabilities were able to raise prices by over 5% and enjoy a growth rate of more than 15%! Furthermore, data and analytics capabilities were highlighted as crucial investments because they provide businesses with the insights and tools to make informed pricing decisions. 

By understanding the underlying factors (the science) driving pricing decisions, sales professionals can craft compelling narratives (the art) and build stronger relationships with customers.

Four strategies for pricing success

Pricing optimization requires more consideration than simply looking at cost increases as your baseline adjustment parameter. Today, many businesses are turning to optimization specialists and price optimization tools, including new technologies like artificial intelligence (AI), to manage their pricing strategies. 

While modern pricing optimization techniques have the potential to boost margins, they often fall short of the expected 2-4 percent margin improvement goal that pricing projects should bring because they lack transparency surrounding pricing factors. So, what can you do to balance the art and science of pricing optimization? We’ve identified four strategies you can implement right now to put you well on your way to pricing success. 

1.Transparent Pricing Tools

Investing in transparent pricing tools and scorecards enables businesses to provide actionable insights to sales teams. The right distribution analytics tools can offer clarity and context for pricing optimization. 

By showing the underlying factors that go into new pricing models and supporting evidence, you’re empowering your sales team with everything they need to go into discussions confidently.

Not only does it make things easier for sales, but it dramatically improves buy-in. Rather than constantly pushing them to produce higher margins, which can create anxiety, you’re empowering them to have informed discussions, using benchmarks and distributor analytics to continue telling their stories and gain the upper hand in pricing negotiations.

2. Customer and Item Ranking Essentials

Pricing optimization in wholesale distribution is inherently complex. It involves more than a few benchmarks. Several factors play a significant role in driving algorithms and price targets. Five of the most important include:

• • Customer importance - You can determine how valuable each customer is to your business by ranking them through stratification. Stratification involves comparing customers and creating composite scores along several top-line-driven metrics (e.g., sales volume, order frequency, and order consistency) and profitability-driven metrics (e.g., average order size, gross profit margin, and days to pay). Once complete,  these ranks serve as a critical input to pricing decisions. For example, a high-value customer who purchases in large quantities and pays delivers on time is typically more “deserving” of lower prices versus a customer with a significantly lower purchasing volume and pays late. 
  • Product rank - Product rank focuses on metrics that affect a specific product's contribution to your top and bottom line. For example, consider how popular a product is by analyzing how frequently it’s ordered, the sales volume it generates, and its gross margin return on investment (GMROII). Once again, having that knowledge is essential to help sales optimize pricing for every customer and order.
  • Item-level visibility - Item-level visibility is a big deal in pricing strategies. If a customer frequently orders a particular item you offer, they may be more resistant to sudden price changes than to items they buy less often.
  • Unit cost - Item-level unit cost can affect a customer’s willingness to accept price changes. Generally, people pay more attention to high-priced items. As a result, you must be more strategic about indiscriminately raising prices on those items.
  • Customer gross margin - The final factor is whether the customer achieved their expected gross margin. Simply put, this factor considers what a customer is used to paying for certain types of products as a general measure of price sensitivity.
    
    

3. Market Intelligence Integration 

Incorporating market intelligence into pricing strategies allows businesses to stay ahead of the competition. By leveraging data-driven insights, sales teams can anticipate market trends and tailor pricing strategies to meet customer needs.

Intelligence helps you strike that delicate balance between setting optimal prices and retaining customer loyalty. In the hands of your salesforce, it can be game-changing. For example, if customers question why you’re raising prices on a specific product, it’s possible to use data to inform them about changes in the supply chain that led to that increase. Market trend insights can also help educate customers to pass along margin increases and boost profitability, resulting in a win-win scenario.

Market intelligence is powerful when accessible to the people who need it. In addition to helping optimize pricing, when passed along correctly, it encourages customer loyalty and gives your salesforce the insights they need to minimize price-driven defection.

         4. Mitigating Salesforce Resistance

A little-discussed social psychology phenomenon called “group polarization” can easily derail the successful launch of pricing projects. Group polarization addresses the observation that it is common for two groups with opposing opinions or attitudes on a given topic to develop even more extreme or “polarized” views following a group discussion or debate. 

Price increases often start as a polarizing topic between management (who wish to boost profitability) and sales teams (who are often anxious about losing sales from disgruntled customers). Sales teams’ resistance tends to build as group discussions commence, making achieving buy-in extremely difficult. This resistance can slow implementation and result in overly conservative pricing decisions that can cut potential margin improvements by as much as half while taking twice as long. 

To overcome group polarization in pricing projects, we suggest proactively approaching the most vocal salespeople individually in advance and seeking their assistance before you introduce the pricing project to the broader group in a formal launch meeting or corporate announcement. This approach can help mitigate resistance and improve buy-in from the entire team, leading to faster implementation and more profitable outcomes.

Pave the way to more effective pricing strategies

Balancing the art and science of pricing requires a simple yet strategic approach prioritizing transparency, education, empowerment, and careful communication. 

By providing sales teams with the tools and knowledge to navigate pricing discussions confidently, you can maximize profitability, foster stronger relationships with customers, and set the stage for pricing success in today’s competitive landscape.

Unlock Success with Game-Changing Pricing Optimization Tools

At ACTvantage, we help you strike the balance between art and science to optimize your pricing. We couple essential tools and distributor analytics with key execution strategies to achieve buy-in from your entire team. Our simple plugin scorecards and comprehensive training provide in-the-moment insights every salesperson can use to master the art of selling while boosting your company’s bottom line. 

Contact us today to learn more, discuss your needs, and take the first steps to develop game-changing pricing strategies.