In our previous blog post we discussed how sub-par sales practices result in revenue losses for B2B distribution companies. In this post, we will take a closer look at how to deal with disorganized pricing data and how it impacts your P&L.
The excerpt below is taken from communications we had with one of our prospects before he became a Pepperi customer.
“I work for a B2B fast-moving consumer goods company with a complex pricing structure in its backend ERP. We end up with prices that are unique to each customer, whether through quotes or signed agreements. In addition, we have complex promotions and surcharges that are calculated in the backend.
Is your e-Commerce platform capable of supporting these custom prices / charges, and if so, how would this be integrated? We must ensure that the prices provided to customers in offline settings correspond to the prices displayed on an eCommerce platform, and that each customer receives the correct pricing information based on their individual contracts.”
Sound familiar? Indeed, pricing is a critical element for any wholesale distributor. It can be a very complex activity if pricing is to be established for customer groups and purchasing groups. The difficulty in setting prices increases as the number of SKUs increases and prices are influenced by a variety of factors, including order frequency, urgency, product types, payment and delivery terms, warranty and purchase quantity.
A customer can have several contracts and orders, complicating the price equation and necessitating the consideration of other variables such as volume-based discounts. When a customer with several contracts places an order, the system must also know which contract to pull up.
B2B companies' complex pricing is frequently what prevents them from shifting to e-Commerce. When B2B customers access their B2B portal, they expect to see the contractually defined prices.
As a result, the most difficult challenge is to replicate each contract in the electronic system as rules, to reflect contractual obligations, including prices agreed upon between your sales team and the customer.
Why does this matter? Because incorrect pricing adds friction to the purchasing process and will lead to a breach of trust with the customer, increasing the chance that the digital channel will no longer be used for self-service. Chances will increase that the customer will switch to a competitor who is able to provide the right price information in real time, and any investment in digital commerce will lose its value.
A 2020 Global Benchmark Report has revealed that on a global scale, distribution companies experience an annual margin loss in the range of 2.89% – 15.70% due to sub-par pricing practices.
The decision to move the pricing mechanism from the back office (ERP) to the front office by loading price agreements into the digital commerce environment or to opt for a seamless integration between the ERP and B2B e-Commerce systems is highly dependent on the company's maturity level, size, and IT investments.
Anyway, to achieve accurate and consistent pricing across all channels and to be able to manage this level of pricing complexity, B2B distribution and wholesale companies must invest in an e-Commerce solution which is flexible enough to accommodate any required or feasible logic. To make the most of pricing and discounting capabilities we recommend you:
- Group your customers by price lists or tiers
- Include the same product in several price lists and create personalized price lists for each catalog.
- Apply discounts at the item level, the account level, the main category/brand level or automated discounts using business rules
- Set regional pricing
- Set prices based on volume or quantity
- Set promotional pricing
- Use a platform that supports multiple currencies
Flexible pricing capabilities in e-Commerce allows for innovation, and we highly recommend experimenting with pricing to see what works best for your bottom line.
Transparency, and a single source of truth, is essential for digital commerce to succeed. B2B companies that do not take action to centralize their pricing will undoubtedly experience negative consequences in practice, which will impact their P&L.