Value-Add Services Or Low Prices: What Kind Of A Distributor Are You?

Most janitorial supply distributors agree they don’t enjoy giving customers price hikes. But passing on price increases is often a necessary task if distributors wish to increase profit margins.

By analyzing quantitative data, and implementing stronger pricing strategies that go beyond selling more products, distributors can effectively improve their bottom lines — without losing the trust of their clients.

According to Steve Deist, a partner at Indian River Consulting Group, Melbourne, Florida, all janitorial distributors are in the same boat, dealing with several forces pushing margins down, including customers negotiating for the lowest price, salesmen looking for the most efficient way to close a sale and suppliers attempting to maximize volume.

“If you don’t have an institutional force to constantly push back on that, then any pricing project that you do is going to probably erode over time,” Deist says.

That institutionalized force should be an executive who will take ownership of pricing within the distributor organization. After a pricing point person is established, a distributor should determine how pricing is currently set, says Deist.

“There is a huge amount of unrealized potential there, and it’s something people haven’t been paying as much attention to,” he says. “Generally what you find is the efforts and investment that you put into optimizing pricing pay back very quickly. If you are trying to allocate your time based on potential financial return, pricing is generally a pretty good area.”

Before a distributor begins the process of improving its pricing model or strategy, it needs to know what go-to-market strategy it wants to take, says Tom Reilly, founder of Tom Reilly Training, Chesterfield, Missouri, and the author of “Crush Pricing Objections.”

Reilly differentiates between janitorial supply distributors who are either driven by value-added services and operate at the higher end of the pricing spectrum and those who are primarily focused on operational efficiencies that allow them to compete on price.

“You can be highly successful at either, but if you try to do both, you are going to fail,” says Reilly. “For me, a (distributor) who says they don’t know how to price doesn’t have a pricing problem, they have a strategic focus issue. He doesn’t know who he is.”

So, before pricing and margins are addressed, the distributor should make sure their operational infrastructure supports its go-to-market identity, says Reilly. This sharpening of identity will invariably alter costs and ultimately margins, Reilly says. 

A value-added provider of janitorial supplies who wants to charge the highest prices in the market must have the infrastructure to deliver product and service quality, while the distributor who wants to be the low cost provider must have lean operations with low technical support and fewer employees, he says.

“The key to pricing and the biggest mistake that I see is most pricing decisions are accidental and not strategic,” Reilly adds.