“The Pricing Optimization program really opened my eyes to a holistic ap-proach to pricing strategy. This pro-gram is about more than just pricing—it makes you consider the cost-to-serve, which products to sell, and how to use your resources to build more Core customers, serve them better, and be more profitable doing it.”

Duane Van Dyke, Vice President Sales, Womack Machine Supply Co.

“This program is a detailed examination of the world of pricing. It has been developed from real data. This should be part of the future of distribution.” Charlie Henry, Manager of Pricing, Kirby Risk Electrical Supply

“ The Pricing Optimization conference provided an expert level of analysis and insight that every distributor needs but few have the time or resources to produce on their own. It was both timely and valuable.” Paul Sommerfeld, Director, Applications & Training, CSC of WESCO DistributionRisk Electrical Supply

Key TaKe-aways

Multi-criteria Pricing Model — Item, Customer, Geography and Time

Stratifying & moving customers to ‘Profit Zone’

A practical & effective ‘Cost to Serve’ model

Rules for Profitability (Risk vs. Reward)

Educational Pricing Game

A best practice approach to pricing

BenefiTs

Sales Force Dashboard — Information for Better Negotiation

How to leverage on existing and readily available system information?

Why and how to link inventory and customer classifications?

Structured and easy-to-understand approach

Optimal allocation of sales force resources

Program overview

ROI & Motivation

Pricing Framework

Customer Stratification & Pricing Game

Cost to Serve (CTS) & Group Exercise

Item Stratification & Pricing Game

Customer’s Item Visibility & Group Exercise

Unit Cost, Gross Margin & Pricing Game

Setting Pricing Rules

Implementation Details & Results

Challenges & Augmenting Factors

Creating Competitive Advantage Through Education

Pricing Optimization

INDUSTRIAL DISTRIBUTION PROGRAM204 Fermier Hall, 3367 TAMU, College Station, TX 77843-3367 PH 979-845-4984 FX 979-845-4980 WEB http://id.tamu.edu

Texas a&M Pricing MeThOdOlOgy iMPacT

(Real World Results - HVAC Distributor)

Branch 1($3.3MM Sales)

Branch 2($4.2MM Sales)

Branch 3($2.4MM Sales)

Branch 4($11.4MM Sales)

18.4%

14.9%16.5%

36.3%

24.4%21.8% 19.4%

48.6%

TransacTiOn daTa Customer, Item, Geography

and Time

NEW MARGIN

RECENT MARGIN

[TARGET MARGIN - RECENT MARGIN]

OPPORTUNITY GAP MULITPLIER

Pricing rules & group exercise

analyTics execUTiOn

• Customer stratification• Item stratification• Customer’s item visibility• Item unit cost level• Customer-item GM level

• Recent price/margin• Recent cost• Customer max price/margin• Group max price/margin• Overall max price/margin

• Potential GM$ improvement• System aided decision-making• Augmenting Factors - New Customer - Competitor price, etc.

cUsTOMer and iTeM analysis

Pricing rUlesengine

WhaT-if analyses

1

OPTiMiZaTiOn2 3

high profitabilityno relationshiplow cost to servelow volume

high profitabilitysustained relationshiplow cost to servehigh volume

low profitabilityno relationshiphigh cost to servelow volume

low profitabilitysustained relationshiphigh cost to servehigh volume

Customer Life (Loyalty)

Sales Volume

Gro

ss M

argi

n

Cost to Serve

OPPORTUNISTIC CUSTOMERS

CORE CUSTOMERS

SERVICE DRAIN CUSTOMERS

MARGINAL CUSTOMERS

customer stratification Model

What-if simulation results

CUSTOMER BEFORE AFTER BEFORE AFTER GM % TYPE GM $ GM $ GM % GM % INCREASE

CORE $ 88,325 $ 111,128 23.4% 27.8% 4.4%

SERVICE DRAIN $ 3,136 $ 3,325 25.8% 26.4% 0.6%

OPPORTUNISTIC $ 21,530 $ 24,635 36.1% 39.3% 3.2%

MARGINAL $ 17,557 $ 20,838 24.6% 27.9% 3.3%

NEW $ 2,271 $ 2,313 30.2% 30.6% 0.4%

RM - RECENT MARGINGMM - GROUP MAX MARGINOMM - OVERALL MAX MARGINNM - NEW MARGINNP - NEW PRICE

Customer - MarginalVisiblity - HighGM Level - LowItem Rank - BUnit Cost - D

scenariO - 1 NM =RM + (OMM - RM)*30%

25% rM

27% gMM

29% OMM

nP = $13.53/(1-26.2%)nP = $18.33 nM = 26.2%

100% 30%

applying Pricing rules

CORE OPPORTUNISTIC SERVICEDRAIN

MARGINAL

7%2% 4% 3% 4%

8%4%

14%

21%15%

-1%

87%

20%26%23%

15%

62%

50%57%

78%

No. of Customers Sales $ Cost to Serve $ GM $ Net-Profit $

customer stratification results

Pricing OptimizationMethodology and Deliverables

SCENARIO CUSTOMER ITEM

VISIBILTY UNIT GROSS

RANK COST MARGIN

s1

s2

s3

s4

s5

What-if simulation scenarios

BEFOREAFTER