Makes you wonder ...

Have you ever wondered how manufacturers and distributors set their pricing?
After more years in the UK automotive aftermarket than I care to remember, most business to business (B2B) pricing strategies remain a complete mystery to me (and also to their architects I believe). Rather than expend effort learning about their market, customers and competitive position, they sit in an office and set their pricing based on cost, guesswork, history and that impostor, ‘instinct’.

In the UK automotive aftermarket parts world, with just a few notable and successful exceptions, low pricing is king. Not to the end consumer of course (who is striped-up to some tune with the myriad of snouts that get into the trough before he gets his carefully calculated bill from Joe Bloggs Motors Ltd - name is completely fictional to protect the guilty!), but through the distribution chain.

It’s not that keener pricing will save money for the beleaguered motorist because, let’s face it, Mr Motorist is going to pay full-whack whatever. It’s about how the margin is distributed along the chain and, for some reason, the guys with the inventory and the sales teams tend to have the lowest margins.

Here’s a suggestion: look at where your business adds value to the distribution chain and work at enhancing that. It may be delivery frequency, inventory, product quality, call-centre staff or easy website ordering. Stop trying to be the cheapest and try to be the best. If you really can’t add value, find something else to do!

You can’t always be the cheapest and if you are, you won’t be for long; if pricing is the main thrust of your success strategy, it’ll fail, sooner rather than later.

The Deadly Sin of the Independent Retailer: spending most of their time buying instead of selling and precious little of their time on strategic pricing – I know this from experience of retailers up and down the UK. If retailers spent as much time selling as they do buying, they’d all be millionaires!

Keep this in mind: the big profit is made on the selling price, not the buying price!
There’s not much point in spending two hours negotiating £0.02 off the buying price of an air freshener and then selling it at £0.50 or £1.00 less than Halfords – but retailers do, believe me! How many consumers know or care about the price of an air freshener?