What You See Isn’t Always What You Get
Alex Davidson on wood floor pricing in the B2B sector
WHAT is the fairest way to produce a price list for the B2B sector? Any wood flooring manufacturer that reaches its end-user via B2B (business-to-business) customers faces a challenge every time it produces a new price list; how should it price its products?
It may seem simple but when a company, like Kährs, targets and deals with B2B customers, including retailers, architects, designers, developers and flooring contractors, it becomes a difficult question to answer, especially when you factor in how the competition price their products to the same market.
We have always worked with a SRP (suggested retail price) list, not for any historical reasons, but to ensure that our dealers can earn a decent return promoting and selling our floors.
That’s always been our business value proposition; we want our customers to make above average industry margins supplying and installing our products.
All pretty straight forward but we’ve noticed, over the past few years, that many competitors and distributors now work with a net trade price list, rather than a SRP price list, for the general market. This means that a retailer, architect, developer and flooring contractor can visibly see the trade price that’s printed within a product brochure, though, in some cases, there may be an additional 10% discount offered to contractors, etc.
Based on market research that we’ve undertaken, it seems that this format opens up a raft of crossovers and conflicts between each customer channel.
If the architect and developer can see the trade price within a brochure, then once the project goes out to tender to the flooring contractors, they find it almost impossible to earn an acceptable margin in supplying and installing the company’s specified products.
The trade price list format also makes companies, like us, look more expensive from a headline price point to the architect and developer, when comparing the two price lists and two comparable products.
Certainly, I’ve had personal experience of discussing projects with architects and developers where they’ve presented a competitor’s trade price list to show the price that they can procure a product for, such as a whitewash one-strip oak.
This is where a major customer conflict can arise. Matching the competitor’s price leaves little or no margin for the flooring contractor or retailer when the project goes out to tender. In some cases, the price of the product is shown on the bill of quantities; with the architect and developer knowing the exact supply price from the manufacturer or distributor, they can easily re-engineer each contractor’s installation costs.
Some manufacturers and distributors don’t see this as an issue, in terms of creating conflict with their existing customer base; their preference may be to secure specification sales, rather than retail or contractor sales.
They make counter arguments that they shouldn’t be put in a position where they may lose a project due to the contractor adding a prohibitive margin onto the product which, to be fair, we’ve experienced over the years.
At Kährs, we always try and protect our primary customer base; flooring retailers and contractors. But we also have to remain competitive when trying to secure specifications from architects and developers that ultimately lead to contractor sales, and this is where we manage the conflict as professionally as we can whilst running with a SRP price list, rather than a trade price list.
In my view, there can only be one way to minimise any customer conflict, to remain competitive and to secure specifications and contractor sales; that is to take a long-term view on supporting your core customer base.
We view our retail and contractor customers as partners, and as a partner we always try and work with them in terms of specifications. As a result, the contractors and retailers are happy to put forward our products to projects and clients that they deal with.
This is the main reason why we work with a SRP price list. It allows our partners to achieve a respectful margin. It’s important to remember that a SRP price list doesn’t necessarily correspond to the price retailers or contractors actually use, or the price customers are willing to pay. It’s also not a legal and binding contract set by the manufacturer, stipulating what retailers and contractors should sell a product for; it is a guide and a starting point.
Another ‘interesting’ pricing method is the strategy perfected by Apple; MAP (Minimum advertised price), but it would need to pass current price fixing laws within the UK before it could be adapted here. MAP pricing lays out a template for resellers or dealers, that makes it difficult for them to advertise a manufacturer’s product below a certain minimum price.
MAP is usually enforced through offering very low discounts of around 5-10% but backed up by marketing subsidies offered by a manufacturer to its resellers.
MAP pricing is not legally binding and recent court rulings in the USA have found that the strategy cannot be bracketed under price fixing. It only works if the retailer and supplier want to maintain a long-term partnership by following the pricing strategy.
This price strategy is effective insofar as it prevents retailers from competing directly with Apple’s own stores, and it also ensures that no one reseller has an advantage over another, allowing Apple to keep its distribution channels clean.
For manufacturers and distributors in the hardwood flooring market, that operate in multi customer channels, it’s clear that resellers want to deal with a supplier who can offer them a degree of certainty in terms of pricing in an uncertain world.
As partners, we all have one common aim: Whether you’re a supplier or a reseller, you want to secure a profitable sale. Transparent and mutually beneficial pricing strategies can help both parties to achieve this goal and that’s got to be good news.
Alex Davidson is the sales manager (UK and Ireland) for Kährs (UK)
This article has been reproduced from the Contract Flooring Journal. You can find them at www.contractflooringjournal.co.uk.