"I would tell distributors that aren't taking advantage of market-driven strategic pricing, they're leaving margin on the table. The analytics from Strategic Pricing Associates and the functionality in the Epicor Prophet 21 software are robust enough to get results!"
Joe Zinaich, Chief Financial Officer | Dillon Supply Company
Dillon Supply Company of Raleigh, North Carolina, is an industrial distributor that has been serving contractors, steel fabricators and other industrial customers since 1914. The company has 26 locations, 280 employees, and annual revenues of approximately $100 million.
Dillon Supply has been using the Epicor Prophet 21 enterprise resource planning (ERP) solution for 10 years, and recently implemented Strategic Pricing with the system, as well.
Strategic Pricing: The basics
For every product/customer sale combination, there is an optimal price-the highest price a distributor can obtain while retaining the customer's business. This is often different for different product/customer combinations. Strategic Pricing is a pricing architecture based on the principle that there are many small margin opportunities which, in aggregate, can yield 2-4 percent in additional pricing margin points for the distributor. It involves detailed segmentation of a distributor's customers by size (from "tiny" to "huge") and type ("core" and "non-core"), profiling of their price sensitivity, analysis of past pricing performance, definition of new pricing standards, and development of metrics to support pricing processes and compensation.
Recognizing the value that strategic pricing would provide to distributors, Epicor formed an exclusive relationship with Strategic Pricing Associates (SPA) to seamlessly integrate a strategic pricing module into its Prophet 21, Eclipse™, and Prelude™ products. Since all that is needed is sales history, the data already exists in most distributors' systems. Epicor customers can easily export the data for analysis and then load the resulting pricing structures/files into the system.
At a previous employer, Dillon Supply CFO Joe Zinaich was Director of Strategic Pricing, so he was familiar with the theory, process, and results of pricing analytics. He knew how he wanted it to work at Dillon Supply, and began investigating the capabilities of the Epicor Prophet 21 ERP and SPA.
In late 2011, Dillon Supply analyzed and stratified its customers into "buckets" by size and types of business. The company provided sales history for the previous year to Strategic Pricing Associates, which conducted the analytics and came back with recommendations. After review by the Dillon Supply executive team, the recommended pricing matrices were installed. Zinaich notes, "For a large company like ours, it's very important to have top management's buy-in for Strategic Pricing, from the CEO to the SVP of Sales and CFO. Ultimately, we considered it important enough to create a new position to specifically manage the process."
A simplified matrix and reduced price overrides
Prior to implementing Strategic Pricing, Dillon Supply had over 200 pricing matrices for its 2,000 suppliers and 50,000 priced SKUs in the Epicor Prophet 21 system. Now, the company has one matrix that covers all products.
Price overrides have been reduced by 60 percent. According to Zinaich, implementing Strategic Pricing over a nine-month period gave the Dillon Supply salespeople some flexibility initially; then the price edits were gradually tightened over time. Now, only managers can override prices in the system.
"We made personal visits to the branches and showed the employees the pricing data, to educate them and alleviate any concerns they had," explains Zinaich. He adds, "We have not seen much customer pushback, only a very few anecdotal examples of lost business due to the new pricing structure."
Not "leaving margin on the table"
Dillon Supply determined how much of its business could be impacted by Strategic Pricing. (A certain portion of the company's business is controlled by contract pricing, while an additional portion is project-related business.) "The immediate business we could affect amounted to approximately 60 percent of our revenue," Zinaich notes. "We have used reporting out of Prophet 21, as well as analysis we perform in-house, to monitor Strategic Pricing performance relative to customer profiles, override management, and product/commodity pricing management. Total revenue margin percentage has increased by over 200 basis points. Affected revenue margins grew in excess of 300 basis points."
In addition, Dillon Supply has experienced qualitative benefits. The overall reception to Strategic Pricing has been good, Zinaich says, noting, "Inside Sales especially likes having market-driven pricing. And as a growing company selling a wide range of products, it's also a big win for us to be able to quickly train new hires relating to pricing policies and practices across the board."
He concludes, "I would tell distributors that aren't taking advantage of market-driven strategic pricing, they're leaving margin on the table. The analytics from SPA and the functionality in the Epicor Prophet 21 software are robust enough to get results!"
Epicor Software Corporation is a global leader delivering business software solutions to the manufacturing, distribution, retail, and service industries. With more than 40 years of experience, Epicor has more than 20,000 customers in over 150 countries. Epicor solutions enable companies to drive increased efficiency and improve profitability. With a history of innovation, industry expertise, and passion for excellence, Epicor inspires customers to build lasting competitive advantage. Epicor provides the single point of accountability that local, regional, and global businesses demand. For more information, visit