Distribution pricing type and strategies: How to use them to maximize sales

Distribution pricing type and strategies: How to use them to maximize sales

In previous articles, I have written about the importance of distribution pricing as a strategy to beat competitors. Effective pricing strategies and management can help wholesale/distributors maximize profitability and maintain a competitive edge in the market. In this article, I will expand on the main price types and the distribution pricing strategies commonly used to boost sales and beat the competition.

Basic types of distribution pricing

A distributor can define several types of prices in the Warehouse Management System (WMS). These prices determine how the distributor sells its products to retailers. Here are some of the basic pricing types that a distributor may set up in a WMS:

• List Price: The list price is the standard price at which the distributor offers its products to retailers. This price type is the baseline price and is often in catalogs or price lists. The list price is typically the highest price before any discounts or negotiations.
• Wholesale Price: The wholesale price is the discounted price at which the distributor sells its products to retailers.
• Volume-Based Pricing: Volume-based pricing involves offering different pricing tiers based on the number of products purchased by retailers. The distributor may provide additional discounts or lower the wholesale price for retailers who place larger orders. This pricing strategy encourages retailers to buy in larger quantities, which benefits both the distributor and the retailer.
• Promotional Pricing: Promotional pricing involves temporarily reducing the price of products to incentivize retailers to make a purchase. The distributor may offer special discounts, rebates, or promotional packages for a limited time. Promotional pricing can help stimulate sales, attract new retailers, and clear excess inventory.
• Contract Pricing: Contract pricing refers to negotiated pricing agreements between the distributor and specific retailers.

Distribution pricing strategies

Wholesale and distribution businesses require careful consideration when it comes to pricing strategies. Effective pricing strategies can help maximize profitability and maintain a competitive edge in the market. In this section I will go over some of the commonly used strategies.

Cost-Plus Pricing: Cost-plus pricing is a straightforward strategy where the price is set by adding a markup to the cost of the product. This markup typically covers overhead costs and desired profit margins. The formula for cost-plus pricing is:

Selling Price = Cost + (Cost × Markup Percentage)

Value-Based Pricing: Rather than considering only costs, value-based pricing takes into account the benefits and value that customers derive from the product. This strategy allows businesses to capture a fair share of the value they provide.

Volume-Based Pricing: Volume-based pricing, also known as quantity-based pricing or tiered pricing, involves offering different prices based on the volume or quantity purchased. By offering tiered pricing levels, businesses can cater to different customer segments and their buying behaviors.

Dynamic Pricing: Dynamic pricing involves adjusting prices in real-time based on various factors such as demand, competition, seasonality, and customer behavior. It allows businesses to respond quickly to market dynamics and optimize pricing for maximum profitability. This strategy is especially effective in industries where market conditions fluctuate rapidly, such as e-commerce or perishable goods. When implementing dynamic pricing, businesses should carefully monitor customer reactions, market trends, and competitive responses to ensure the strategy aligns with their overall business objectives.

Relationship between distribution pricing type and strategy

The figure below shows the most commonly price strategy associated to each of the basic price types

It’s worth noting that these associations are not mutually exclusive, and a WMS can utilize multiple pricing strategies simultaneously. The specific pricing strategies employed in a WMS depend on the distributor’s objectives, market dynamics, and the characteristics of their retailer relationships.

I hope this article on a distribution pricing has been helpful to you. I will continue to post information related to warehouse management, distribution practices and trends, and the economy in general. If you are interested in this article or want to learn more about Laceup Solutions, please subscribe to stay updated on future articles.

There is a lot of relevant information on our channel. Check out this video about distribution pricing types.