You are here

Parts Distributor Pricing Strategy Case Study

Leading Distributor of HVAC Parts Targets Pricing Outliers

A distributor of heating, ventilating and air conditioning aftermarket parts was troubled by the lack of a structured pricing system to handle its 100,000 SKUs. The firm kept an inventory of blower motors, switches, thermocouples and similar components to serve its customer base of contractors.

The problem existed among the sales team: Sales reps had broad authority to set prices on a transaction-by-transaction basis. Management had loosely set profit margin targets through a broad-based approach that left plenty of room for sales reps to discount or mark up prices. This made it difficult to control price across the large number of SKUs and an even larger customer base.

Price Point Partners requested a history of pricing data taken from the distributor’s invoices. Using proprietary pricing analytics, Price Point Partners performed an analysis to gain insight into the firm’s pricing patterns. We looked at individual SKUs to determine how prices were varying at the transaction level – that is, how prices varied on a line-item-by-line-item basis.

What we found was that prices for specific SKUs varied by as much as 160%. For example, a price for a specific thermal switch was as low as $16 per unit and as high as $42 per unit, and everywhere in between.

Furthermore, identical SKUs were being sold to the same customer at widely different prices. In one case, a thermocouple sold at five different price points to the same customer – from a low of $13.99 to a high of $23.86.

Distributors tend to be particularly vulnerable to price variance due to the high volume of SKUs and the large number of customers inherent in their business. Creating a pricing architecture that factors in the appropriate price sensitivity drivers is necessary to controlling pricing variance and delivering improved profit margins.