Strategic Pricing Associates, founded in 1993, specializes in optimizing pricing strategies for manufacturers and distributors to maximize profitability, citing successful collaboration with major companies such as Parker Hannifin and ExxonMobil. Effective strategic pricing management is vital as it significantly influences revenue and profits, with a focus on data-driven insights and structured pricing methodologies. The document emphasizes the need for a systematic approach to pricing architecture to overcome common challenges like cost-plus mentality and unstructured discounting.

1. Overview of Strategic Pricing
David S. Bauders
All Rights Reserved
david.bauders@strategicpricing.com
216.536.2800
www.strategicpricing.com
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2. Strategic Pricing Associates, Inc. Overview
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SPA Was Founded in 1993
SPA has Broad, Deep Experience & Success in Pricing
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Led Parker Hannifin CEO’s worldwide pricing initiative over six years across 90
manufacturing units and 30 trading units: CEO attributed impact of over $800m
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Distributor/Dealers: ThermoFisher Scientific; Grainger; Wesco; OneSource;
Industrial Distribution Group; Finning; Boundtree Medical; Famous Supply; Valin
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Over 200 Manufacturers: ExxonMobil, GE, Rockwell Automation, Mitsubishi/
Caterpillar; American Standard, Sherwin Williams; ICI/Glidden; BASF; Pella; Dover;
Tyco; Akron Brass; Atkore
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Over 350 Industrial Distributor Businesses, with Strategic Partnerships
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Industrial; Electrical; Plumbing/HVAC/Building Products; Tools; Paper/Packaging;
Chemicals; Medical; Fluid Power; Equipment Dealers
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Partnerships with Parker Hannifin, ExxonMobil, Mitsubishi/Caterpillar, Rockwell
Automation, Pella, Activant
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Exclusive provider of pricing analytics to Epicor’s ERP platforms, such as Eclipse,
Prophet 21, Prelude; over 4200 distributors
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4. Pricing Concepts
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5. Why Strategic Pricing Management?
• Pricing is the essential discipline of converting
customer value into shareholder value
• Massive investments by manufacturers and their
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distributors create value for customers
Strategic Pricing Management maximizes the return
on those investments, while recognizing competitive
realities in the marketplace
• Every revenue $ results from pricing decisions
• Pricing has disproportionate impact on
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profitability
• 2% variation = $ 2 million per year per
$100 million in revenue
Flows through directly to the bottom line
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6. How Profit Variables Impact a Manufacturer’s Operating Profit
Assumes 10% ROS, 25% Ave GM, 15% Ave Overhead
SP 2%
20%
(1) Increase Selling
Price by 2%
2% Increase in Selling Price = 20% Increase in Net Profit
2% Volume
15%
(2) Increase Volume
by 2%
2% Increase in Volume =
15%
Increase in Net Profit
2% OE
(3) Reduce Operating
Expenses by 2%
3%
2% Decrease in Operating Cost = 3%
Increase in Net Profit
2% COGS
(4) Reduce Cost of
Goods Sold by 2%
15%
2% Decrease in COGS =
15%
Increase in Net Profit
The Most Powerful Profit Lever Is Pricing
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7. How Profit Variables Impact a Distributor’s Operating Profit
Assumes 4% ROS, 30% Ave GM, 26% Ave SG&A
SP 2%
50%
(1) Increase Selling
Price by 2%
2% Increase in Selling Price = 50% Increase in Net Profit
V 2%
(2) Increase Volume
by 2%
15%
2% Increase in Volume =
15%
Increase in Net Profit
2% OE
(3) Reduce Operating
Expenses by 2%
13%
2% Decrease in Operating Cost = 13%
Increase in Net Profit
2% COGS
(4) Reduce Cost of
Goods Sold by 2%
35%
2% Decrease in COGS =
35%
Increase in Net Profit
The Most Powerful Profit Lever Is Pricing
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8. Pricing Impact
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9. Why do companies struggle to maximize price
performance?
• Cost-Plus Mentality
• Unstructured discounting
• Complexity
• # Customers: thousands
• # SKUs: tens of thousands
• Equals millions of potential pricing permutations
• Difficult to set up and execute an effective pricing
architecture
• Various systems issues and data weakness
• Difficult to measure performance, evaluate
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performance
Lack of Training, standards
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10. Price Indexing:
Market Segmentation
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SPA assists clients in establishing market segmentation
and customer size structures for purposes of pricing
analysis
• To reflect common value-in-use and competitive coverage characteristics
Typically half a dozen key vertical market segments
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Examples: Contractor, OEM, User, Industrial, Reseller, Gov’t
Typically 5 customer sizes per vertical segment
• Tiny, Small, Medium, Large, Huge
Result: each customer is assigned to a peer group
based on market segment and customer size
• Eg, Small Contractor, Medium User, Small Reseller, Large OEM, etc.
Client submits invoice data for pricing analysis
We then perform comparative price analysis using our
proprietary indexing methodology
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11. Price Indexing
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Compare each customer’s price on any given
product or service to the prices paid by customers
in the same peer group
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Peer groups reflect competitive coverage and general price
sensitivity
Indexing can be done at the individual product/
service (sku) level or at the customer’s basket level
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12. Price Index Methodology
Type/Size Price Index
Customer’s
SKU-Level
Index
Price Paid by Customer A for Product 1
Avg. Price Paid by A’s Group for Product 1
0.90 = 10% less than Peers
1.10 = 10% more than Peers
Customer’s Actual Sales
Customer’s
Overall Index
What Customer’s Sales would be at Peer Group’s Average Price for
Each SKU
Example:
Customer Actually Paid $9,000 for all SKUs
Customer Would Have Paid $10,000 if He Paid Average Price for Each
SKU
Customer’s Overall Index = 0.90
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13. COMPLEX COMPANIES FAIL TO CAREFULLY MANAGE PRICING
1.0 = Average for Customer’s Type
Small Customers Getting Lowest Prices
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14. 9 Companies’ Scatter Plots
Company 1
Company 2
Company 3
Company 4
Company 5
Company 6
Company 7
Company 8
Company 9
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15. Core vs. Non-Core Pricing
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Core products are those at the top of each customer’s
market basket
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Highest sales $
High in visibility
High in incentive to shop for price
Competitors most willing to quote prices
Customers buy more frequently
Non-Core products are those tag-along products at the
bottom of each customer’s market basket
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Low in sales $
Low in visibility
Low incentive to shop for price
Competitors overlook
Customers buy infrequently
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16. Pricing Sensitivity (Statistical Model)
Core A
Highest Sensitivity
Core B
High Sensitivity
Non Core C
Non Core D
Low
Sensitivity
Lowest
Sensitivity
Price
adjustments
limited to
bottom 50%
of customer
sales
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17. Core Versus Non-Core:
Everyday Examples
Environment
Core A/B
Non-Core C/D
Gas Station
Gasoline
Lottery Tickets, Beer,
Cigarettes, Candy
Hotel
Room Rate
Mini-bar, restaurant, internet
access, faxing, gift shop,
room service
Football Game
Ticket Price
Parking, Beer Price,
Souvenirs
Sam’s Club
End Caps, Household
consumables: light
bulbs, batteries,
cleaning supplies, major
grocery groups like
milk, beer, soda;
frequently replenished
items
Odds & Ends, the rest of the
store
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18. Thoughts About Pricing
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Pricing is a “contact sport”; if your uniform isn’t dirty, you
weren’t in the game
Don’t build your strategy around your exceptions: the best
policies will have exceptions; the key is to manage/limit them
The optimal level of pricing complaints is not 0; otherwise you
are not pricing to resistance
Use data to make decisions
Price pressure usually indicates a lack of differentiation
between you and your competitors: What do you have to do
differently to price to value?
Focus on reducing the price sensitivity of your accounts over
time
You don’t have to be perfect to win
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19. Next Steps
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Please visit the SPA website: www.strategicpricing.com
Take A Free Pricing Opportunity Profile :
www.strategicpricing.com/offer/profile/
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Upcoming Free Events:
Webinars held several times per month; check SPA website
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SPA Strategy Seminars
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Full-day seminars, held several times per year in cities worldwide; check SPA
website
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20. Calculating Pricing Potential
in
Your Businesses
• Gross Revenues, less:
• Fixed-contract pricing beyond 1 year
• Equals “Net Revenue in Play”
• Times Impact Percentage:
• 1 percent:
• 2 percent:
• 3 percent:
• 4 percent:
low estimate
conservative estimate
good estimate
excellent performance
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21. Summary
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The current economy requires urgent action to develop a
pricing architecture and compensating pricing layers
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Strategic pricing is a big opportunity for manufacturers and
distributors, generally 2+% of revenue
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Can improve a company’s net profitability by 20% or more
The drivers of the opportunity are clear
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Cost plus mentality and sales rep discounting practices
Complexity of product lines, customer base
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To be effective, a pricing program needs to be data-driven, to
translate strategy into actionable plans
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Long-term commitment; pricing czar; executive sponsorship;
persistence; and channel engagement are keys to success
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Pricing is a specialized discipline where expertise has huge
payoff in impact and speed of execution
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