The MHEDA Journal - Fourth Quarter, 2015 - (Page 79)
Pricing the Forgettable
Last Five Percent
BY DR. ALBERT D. BATES, PRESIDENT, PROFIT PLANNING GROUP
ost distributors continue to lament the pervasive,
and possibly increasing, pressures on gross margin percentages. Seemingly, price is outweighing
almost every other factor in the competitive arsenal.
At the same time, gross margin is one
of the "big two" in increasing profits
for distributors (the other being operating expenses). This creates an imperative for distributors to generate extra
gross margin dollars whenever they
can to offset the dollars lost from price
A continually under-utilized margin
opportunity for distributors involves
raising prices on the slower-selling portion of the product mix. Many distributors may argue "been there, done that."
Despite those protests, a major profit
opportunity remains largely untapped.
This report will examine the potential
for enhanced gross margin associated
with slower-selling items. It will do so
from two perspectives:
* The Gross Margin Potential - An
analysis of how increasing prices
on slow-selling products can influence the total firm gross margin
* Finding the Margin Opportunities
- A discussion of the types of items
on which margins can be enhanced
even with on-going price pressures.
The Gross Margin Potential
Within every line of trade in distribution, including MHEDA, there are wide
variations in the gross margin percentage across different SKUs. In a typical
variable pricing (or matrix pricing)
scheme, fast-selling items have low
gross margin percentages while slowselling items command higher ones.
At the fast-selling end of the product line, the A items, there is virtually no opportunity to increase prices
successfully. These items are purchased frequently so customers are
very knowledgeable of pricing. To
use an unpleasant term, these items
At the other end of the product spectrum, the D items represent a genuine margin-improvement opportunity.
However, too often the profit potential
is overlooked or even disparaged.
Frequently, the sobriquet "D stands
for dog" prevails. After all, the D items
are usually only about five percent
of total company sales. Seemingly,
there is nothing to capitalize on here.
In fact, if anything, the firm would like
to eliminate the D items because they
are such slow movers.
The Common Characteristics of Blind Items
* Low Sales Level
Bought rarely, unlikely to remember the last price paid
* Not Heavily Promoted
Information about price not readily available
* Bought Only When Needed
Availability more important than price
* Low Price
On a small item, no real concern about price
* Repair Parts
Buy something small, avoid replacing something large
Hard to find, availability is key
No need to discount "in season"
Difficult to obtain specific price information
The MHEDA Journal | Fourth Quar ter 2 015
Table of Contents for the Digital Edition of The MHEDA Journal - Fourth Quarter, 2015
From the Desk of Liz Richards
Ask Your Board
MHEDA University Calandar
MHEDA MEMBER PROFILE
MHEDA’S 2016 CRITICAL IMPACT FACTORS
COLLABORATING TO GET THE JOB DONE
HOW TO GET YOUR ONLINE MARKETING EFFORTS BACK ON TRACK
BACK TO BASICS
PRIVACY AND SECURITY
A TREASURE CHEST OF EMPLOYEE TRAINING
GETTING THE MOST OUT OF AN INTERNSHIP PROGRAM
MATERIAL HANDLING M&A: 3 REALITIES IN TODAY’S INDUSTRY
PRICING THE FORGETTABLE LAST FIVE PERCENT
Spotlight on Association News
TEN MORE REASONS WHY YOU CAN’T FILL JOBS
Index to Advertisers by Product Category
The Last Word
The MHEDA Journal - Fourth Quarter, 2015