Everything under the Sun and…
A Pricing Strategy to Match
Plumbers Supply Company’s motto is “Everything under the Sun”. With a proud 85-year heritage, they serve Kentucky, Indiana, Ohio and a big slice of America’s heartland with wholesale Plumbing, Industrial PVF, Hydronics, Pumps, HVAC and Fire Protection equipment. Their extensive line care provides products for the residential, commercial, industrial and institutional markets. And, with an offering like that, one can easily imagine how their main warehouse could contain 50,000 SKU’s. With this broad range of markets served and a gigantic number of products, building a pricing process was major challenge.
Plumbers Supply selected Strategic Pricing Associates (SPA) for their pricing process. Jay Johnson, their President and COO, lauds SPA’s work on a number of levels. First, he believes their pricing process drives consistency, builds customer trust and serves as a cornerstone of their customer service philosophy. Mr. Johnson made this statement about the whole customer-centric culture thing:
“We believe that our Strategic Pricing Associates based process is a cornerstone in nurturing customer relationships. Consistent pricing builds trust. Nothing is worse for our contractor customers than getting one price today and an unexpectedly different price next week. When a customer experiences this, they begin to question every aspect of our relationship. Things like inventory, service and programs all flash through their minds.”
After hearing a statement with this kind of punch, we wanted to dig a bit further into the mechanics leading up to Plumbers Supply’s relationship with Strategic Pricing Associates. We went back to Mr. Johnson for more details.
Armed with a strong IT department and a management team possessing accomplished and diverse backgrounds, Plumbers Supply identified the need to develop a pricing strategy some time ago. Initially they intended to build the process in-house. But, midway through their efforts they began to hear of the success coming from SPA. When they heard that Activant P21 would soon incorporate access to SPA’s process they decided to learn more. They liked what they heard and Plumbers Supply became part of the first of a wave of Activant users to put Strategic Pricing Associates strategy to work.
The SPA process calls for company data to be run through a scientific analysis using a proprietary algorithm developed by David Bauders and his SPA team. SPA analyzes previous invoices and methodically determines levels of relative pricing sensitivity. They then work with the distributor to segment customer types. And finally, they match discount schedules with market needs – providing greatest discounts where price sensitivity is high and maximizing margin where there is no price sensitivity. With all of these steps, we wondered just how long it takes to start seeing results. According to Mr. Johnson, the whole process from decision to roll-out took less than three or four months. “We decided to go with SPA in early March and “rolled-out” the process in four of our branches around May 15th.” Plumbers Supply Company’s management team made the decision to upgrade their SPA system very quickly after the first results flowed in. More results continue to flow with each following month.
SPA provides Plumbers Supply with ongoing reports to manage the pricing process. Using these reports, they run a monthly contest for Inside Sales, Outside Sales and Branch location improvement. By carefully measuring the ongoing ratio of attainment, their team can see which salespeople, branch or business unit is most diligently following the system. Again quoting Jay Johnson, “We are currently affecting only 54% of our business. But each month as additional long term contracts and other outdated pricing agreements die off, more business comes under the SPA guidelines.” The process Plumbers Supply put into place called for a gradual migration - first four branches and a select group of customers. Ultimately they expanded to all eleven of our branches and covering the entirety of our business units.
One of the lessons learned in their efforts was the fear factor. Jay reports, “If we could do it over again, I probably wouldn’t spend so much time analyzing things early in the stages – especially some of those smaller customers. We feared customer pushback but it really didn’t happen. From a cultural standpoint we care about our people and wanted to bring everyone along at a comfortable pace – even if we did lose a few potential dollars in the short haul.”
The Plumbers Supply culture is important to their management team. Their follow-up is legendary and the added structure of a scientifically developed pricing process makes this something that will be part of the organization forever. Jay and his team feel a critical part of the SPA process comes in the way it helps people put metrics on their value to the customer. Throughout the organization small teams of both Inside and Outside Sales people work together to strengthen their larger understanding of the Plumbers Supply value. The whole company dedicates one full hour a month on training that covers everything from role playing, margin vs. markup and how to counter value-based objections.
Jay and his team believe in permanence and they believe in progress. He comments, “We are still a work in progress. We fight challenges every day. For our inside sales people, it’s learning to understand the difference between a large quote and a normal order. Our salespeople are still astounded by how high the Home Depot price is – especially since they are supposed to be the good price leaders.”
The results speak for themselves; Plumbers Supply reports a three point increase in gross margin with more than one and a half points directly attributable to the SPA process. But Johnson feels there are more improvements on the way as the whole company comes under the strategy.