The silent profit killer in B2B wholesale & production
Bad pricing models are draining B2B profits. Digital dynamic pricing offers a new way to kill the profit killer. A company we just helped will lift profits with 30-50 million DKK. Here's how.
The sales manager, Lars, welcomes one of his favorite customers.
The contractor is a nice guy, the relationship has lasted for 8 years, and his business is fairly stable in terms of employees, projects, and revenue.
However, “the market is tough” the contractor complains. Margins are thin.
So again today, he wants to discuss discounts and prices.
Lars wants to keep the contractor happy. So he willingly provides yet another price cut.
You want to keep your customers, right?
>> Event with DI on April 3: Mastering pricing strategies in B2B
There is just one problem…
Actually, there are many.
Lars doesn’t exactly know…
Does Lars even need to give discounts? If so, for which products is it okay, and where is it stealing his profit?
With +200,000 products, brands, and white-label products it’s difficult to know. Often impossible.
What fuels his loyalty? Are prices that important? Or is service, fast and flexible delivery, or other things his main reason for being a long-term customer?
follow (or not) the price development of the products and categories?
Can he explain to the contractor why the prices are as they are? Does the sales rep know the right break-even price where all relevant costs are included?
profit, basket size, buying frequency, product returns, and service agreements? Is he a good customer? Is there potential for more?
Or does the sales rep have his hands tied up because of a fixed annual agreement?
Huge drops in profit margins and huge foreign competition
The competitive world of wholesale and production is under extreme pressure in Denmark.
An analysis of the 8 biggest wholesalers reveals an average 37% drop in profit margin.
For some, yearly profit losses amount to 25-35 million DKK. Accumulating…
Besides thin margins, competitors from abroad are arriving.
B2B sales through Amazon Business is now at 35 billion dollars and is one of Amazon’s fastest growing business units.
Pricing is increasingly important to stay profitable. Knowing your costs as well.
Cost+ pricing is outdated
However, legacy pricing models often rely on outdated methodologies like cost-plus pricing, where prices are determined by simply adding a margin to production costs or looking at the competitor.
In addition, personal relationships and individual sales rep price-setting further damage profit.
Pricing becomes spontaneous.
Profit becomes an afterthought of what could have been…
Solution: Build dynamic, digital pricing models in line with your strategy
Dynamic pricing is a data-driven approach that sets and adjusts prices strategically and dynamically based on:
- Product and category transparency on costs, break-even, and sales
- Competitor and market pricing (simulating optimal pricing)
- Customer segmentation and business cases based on behavior, history, and price sensitivity.
- A bonus and discount model that increases profitability on customers and suppliers.
- A clear governance model with decision levels that pins out how and to whom discounts can be made.
So if your strategy is to penetrate the market, steal market share, or lift your profit margins, your pricing strategy should support the chosen path.
Paired with digital tools and organizational focus (breaking down siloes between category management, procurement, and sales), the new model transforms how companies approach pricing.
Benefits of dynamic pricing strategies:
Precise pricing and cost insights ensure products are neither underpriced nor overpriced. Each category could/should follow different pricing models that can be tested and optimized, and where you can follow performance.
Transparent and consistent pricing builds trust. The customer will know why he gets discounts or not.
Automated, digital pricing can handle large product catalogs with minimal manual intervention.
When pricing, discounts, and supplier bonuses follow a strategy and plan that everyone within the company knows, you gain an overview like never before. Followed by monthly pricing meetings where you dive into categories, top-performing and low-performing products, and customers (prices, volume, and service level), you can increase profit margins.
The new dynamic pricing model provides the transparency, stability, and predictability we need to leverage growth and profitability. It’s an active, strategic tool to scale our business.
Conclusion: The urgent need for better prices
Within the last months, we’ve implemented the dynamic pricing model for one of our customers and started the strategic foundation for another wholesaler.
As the quote above signals, it’s promising. They expect an increased profit margin increase of 30-50 million DKK.
Bad pricing structures are a significant threat to profitability.
But it doesn’t have to be like that.
Want an analysis of the potential of dynamic pricing for your business?
Don’t hesitate to contact our pricing expert Mads. He has helped companies worldwide on their pricing strategies.
