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Increase Distribution Margins without Raising Prices

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Does your distribution company need to increase margins and improve profits? Of course, you’d like to increase your margins! But, how do you increase the margin on the products you distribute without just raising your prices?

The general notion is that if you increase prices you will lose customers. Your loss of customers may offset any increased profits from better margins, leaving you in exactly the same position.

There are a variety of ways to increase your margins depending on the products you distribute.

First, do some research on your customer’s product sensitivities:

– How did they react to past price changes?

– How do they react to packaging changes?

– How do they react to a change in delivery charges or time frames?

If you know your customers react to price increases by finding another supplier, take a look at how you can instead increase your margins thru changes to packaging or delivery options.

Do you control packaging choices or can you influence your suppliers to change their packaging? Can you provide less in a smaller package and leave your pricing the same? This will increase your margins without an obvious price increase.

A recent pricing study showed that buyers are 4 times more sensitive to price increases than packaging changes.

Another advantage of packaging changes to smaller, thinner or recycled materials, is the ability to create a marketing opportunity about your company’s new environmental initiatives.

Delivery methods can be changed to a lower cost with a longer lead-time in order to increase your margins. As long you notify your customers about the change they can adjust their inventory replenishment criteria.

If you pass along just a small percent of the transportation savings to the customer it can be a win-win situation for both you and your customer.

Creative analysis of all of your cost component’s with data from your business and distribution system can give you new paths to implementing margin increases. Does your system provide the ability to perform this type of analysis? If not, contact Socius about it’s Distribution 20/20 system capabilities.

By Socius, a distribution system provider

Resource Links:

http://www.inc.com/ilan-mochari/raise-prices-upset-customers.html

http://www.strategy-business.com/blog/I-Scream-You-Scream?gko=21d42

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