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Dynamic Pricing, Distribution, and The Coming Storm

Jared Smith< Jared Smith May 6, 2020

The economic impact that COVID-19 has had, and will continue to have, is mind-boggling. Businesses, both large and small, are feeling the impact. As leadership in these businesses cope with the ‘new normal’ (which we all hope is as temporary as possible), they are quickly exploring levers that will help their operations sustain revenue and profitability. One of these levers is pricing, and probably right now more than ever, organizations will have to be agile during this time of constant uncertainty with how they price and re-price in their markets.

When pricing changes with high degrees of frequency, it goes by another name: dynamic pricing.  

Read: All Things in Constant Flux: Dynamic Pricing

Dynamic Pricing in Industrial Distribution

Like many major industries, industrial distribution is divided into sectors that include building products, auto parts, and electronics, to name a few. Currently, the entire distribution industry is facing many unique challenges that are causing digital disruption and forcing distributors to think about the way they do business and come to market. This hand was partly forced by Amazon and other entrants that are bringing superior digital capabilities, including the ability to price dynamically, to capture value and share of wallet. This story is well known.

The good news is that most distribution companies today recognize the need to enhance their digital capabilities in order to keep up, let alone succeed. This includes investments into platforms that deliver smooth sales transactions that can deliver a B2C type of experience. It also includes investments into pricing tools that can help them price dynamically with greater precision and frequency so they can compete in an ever-changing marketplace.

Increasing capability in dynamic pricing is not just to fend off the new entrants and threats, however. Each day the competition is making investments to give them competitive advantage as well. In an industry that already runs off thin margins, being able to outperform your competition by quickly adapting and delivering the right price is critical.

The bad news is that many sectors in distribution have been resistant to change and their disruption risk is high. Areas like electronics and auto parts distribution are already feeling this in full effect, and many are scrambling to develop dynamic pricing and commercial capabilities so they can be proactive instead of reactive.

Other areas of distribution, like the building industry and metals, currently are experiencing some breathing room. But leaders in these sectors know that the breathing room is, in fact, borrowed time. When disruption comes, and it will, like a storm – fast and with damaging effect. For these sectors, making investments early into dynamic pricing and digital commercial capabilities is ideal; it allows them to be first movers and positive disruptors in their space. This in turn, can create competitive advantage over your current and future competitors.

Start With a Strong Foundation

If B2B distribution organizations want to embrace and invest into the journey of dynamic pricing, then it is imperative that there is a solid technological foundation to make it happen. As David Anderson explained in an earlier blog, Don’t Use Excel to Manage Pricing.

Dynamic pricing is a powerful and profitable strategy in stable economic times, and arguably even more needed in turbulent times like we are facing now. Investing in the right tools and technology now will help organizations weather the storm and set them up as positive disruptors for the better times that surely lie ahead.