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Who is in charge of pricing?

By Andy Vabulas and Brent Grover

Who is in charge of pricing in your wholesale distribution business? Typically, when asked that question, people respond in one of three ways:

1. We have a pricing coordinator who has overall responsibility for our pricing.
2. Pricing is everyone’s responsibility. No one individual is in charge.
3. The sales reps and sales managers are in charge of pricing for their own accounts.

Although having a dedicated pricing coordinator can be greatly beneficial to a distributor, many companies do not have one on staff. But in order to understand the evolution of this role, it’s important to begin with a bit of wholesale distributor history.

In the early days, the owner, usually the founder, priced every order himself. The same person also did all the buying so he knew how much the company paid for each product. The entrepreneur had a “trader” mentality so he was keenly aware of the need to get as much as he could for each item on every order. The company’s salesmen checked with the owner before offering discounts to their customers. Indeed the pricing coordinator was the owner himself, and he considered pricing to be one of the most important things he watched over.

Today’s distribution business model largely delegates pricing to the sales reps. The management checks-and-balances used to control inventory, customer credit, people and non-people expenses are usually absent when it comes to the pricing function. The well-managed distributor has an inventory manager, a credit manager and an IT manager but even some of the best distributors do not have one person responsible and accountable for pricing.

What does the distributor pricing coordinator do?
In an effective distribution model, a pricing coordinator carries a variety of responsibilities. Even distributors with solid pricing architecture need a strong person to manage the following tasks:

• Assign customers to the correct segment for pricing.
• Assign products to the proper pricing category.
• Stratify customers based on volume. (Exceptions are approved only if warranted.)
• Verify “special pricing agreements” for larger accounts, as needed.
• Justify sales rep requests for discounts before approval.
• Ensure bid pricing is up to date with changing competitive conditions.
• Apply customer profitability and cost-to-serve data to pricing decisions.

Depending on the company’s complexity and level of business activity, this may be either a full-time or part-time position.

Who makes a successful pricing coordinator?
Next, before hiring a pricing coordinator, it’s important to consider the qualities of a successful person in this position. To be fully effective, the distributor manager responsible for pricing needs these attributes:

• The individual must command the respect of the sales reps.
• Like the credit manager, the pricing coordinator needs the authority to carry out his or her duties without fear of being overridden by other managers.
• This person must have a good sense of customer needs and why customers buy from the company, as well as a deep understanding of how the business generates a return on investment.
• The pricing coordinator must be a master of the company’s processes, procedures and systems.
• The person in this position must be organized, decisive and have strong people skills.

It is generally recommended to hire from within for the pricing coordinator position, rather than selecting a person new to the organization. This is because existing employees already possess a strong knowledge of the company’s processes, and it is easier for them to gain the respect of others within the company.

What the pricing coordinator needs to be successful
Furthermore, in order for a person to be successful in his or her new role, the company must also set up a hierarchy to determine who is given authority. Here are a few guidelines, which can help set up the position for success:

• The pricing coordinator should not report to the company’s sales function. In a larger distributor this person can be part of the marketing department. Other options include reporting to the finance or purchasing manager.
• Top management must support the authority of the pricing coordinator.
• The IT function must devote adequate resources to support the needs of the pricing function.

We are on the leading edge of a movement toward wholesale distributor management taking control of pricing. Good pricing architecture and a qualified pricing coordinator can help the company create value for both customers and shareholders. This function is critical to the company’s ability to achieve and sustain pricing optimization. After all, increasing the overall margin by two percent causes an increase in return on investment of eight to 10 percentage points.

Andy Vabulas is CEO and owner of I.B.I.S. Inc. (www.ibisinc.com) and Brent R. Grover is managing partner of Evergreen Consulting LLC (www.evergreenconsultingllc.com).

This article originally appeared in the Sept./Oct. 2012 issue of Industrial Supply magazine. Copyright 2012, Direct Business Media.

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