Industry Insight

With EBIT margins of less than 5%, a 2 % price reduction can reduce profits by up to 40%. Sales reps under pressure to meet revenue targets have been known to offer well intended but ill-advised discounts to customers.

The wholesale / distribution model operates in tandem with many other channels to market. OEM manufacturers use distributors to gain local presence where they don’t have the scale or profitability to open up a dedicated office themselves.

In recent years, many OEMs have attempted to go direct and bypass the distributor function. Others have not managed the natural channel conflict well, leading to reductions in total product profitability as one channel battles against another for the same customer dollar.

Wholesalers operate on razor thin margins and need economies of scale to make their operations profitable. When other channels, such as major accounts, undertake discounting tactics to win market share, this impacts the profitability of the wholesaler / distributor.

Alternatively, the product range and sales mix is not optimal, leading to substandard margins and reduced profitability despite revenues and volumes holding steady or growing.

One distributor client we assisted had over 150 sales reps each making their own pricing tactics decisions and setting price levels to customers. The net result was inconsistent pricing, conflicted sales teams and customers who were able to negotiate prices based on the sales personality, not the product or service value.