To succeed in online channels, distributors need to develop new capabilities, including in price management. Your old-and-proven pricing practices of the past may need to be enhanced so the business can operate optimally in the world of e-commerce.

Traditional price structures in B2B often consist of price matrices to manage prices charged at the established customer base and product-specific list or street prices when the price matrix does not apply, such as when selling to the generic public. Rebate structures may also be in place, especially for larger accounts.

When distributors with traditional price structures start to engage in e-commerce, questions predictably arise. Here are five critical price management questions facing traditional distributors getting into e-commerce.

Question #1: What prices, if any, should we show on the public website?

Typical answer: Distributors often make their list/street prices visible on the public pages of their websites.

The challenge: In dynamic markets, list/street prices need to be frequently updated to remain reasonably market-aligned – and many distributors lack the capabilities and resources to keep these prices up-to-date. If the prices displayed on the distributor’s public website fall out of market alignment, the distributor may be exposed, and growth may slow.

Established customers may pay relatively little attention to these public prices when buying products because contracts or customer-specific price schedules dictate their actual prices. But if a current customer considers expanding their business with you to product categories not covered by their contract, they may be put off by inflated prices. Also, if a new potential customer comes to the site and sees much higher prices than they have seen elsewhere, you might never have the opportunity to establish a relationship and customer-specific prices with them.

Not showing any price might not be a great option either. Potential customers may assume that a lack of pricing information on the public website indicates that your prices may be too high (hence the “refusal” to display them on the website).

Question #2: When/how will customer-specific prices be presented to authenticated users on the website?

The typical answer: Websites are programmed so that customer-specific pricing is displayed only to known users, after the customer has logged in with appropriate credentials. These customer-specific prices may then appear as the items are displayed on the website or later in the funnel, after items are added to the cart, for example.

The challenge: Some customers may take advantage of the price visibility and engage in price comparisons (which was significantly more difficult before e-commerce). Also, full customer-specific price lists have been historically viewed as strategic proprietary assets/trade secrets to be kept safe. In the online world, however, these digital assets may have little protection beyond what customers use to safeguard their login credentials.

Question #3: How can we ensure that matrix-based/customer-specific prices are not higher than the list/street prices charged to the public (and visible to all visitors)?

The typical answer: Some distributors derive customer-specific prices mathematically by way of discounting public list/street prices. Others may use checks to ensure that public prices are never lower. For example, they may use the list/street price as a price ceiling for customer-specific prices.

The challenge: If an established account discovers their price is higher than the distributor’s street price, they may feel gouged or that they're being charged inflated prices. A seemingly easy solution used by many distributors is to enforce rules that define specific mathematic relationships between public and customer-specific prices.

By doing so, however, these distributors may significantly reduce their flexibility to manage their prices and create different problems for themselves. For example, if customer-specific prices are derived by applying discount percentages to list/street prices, a change in one price (customer-specific or list/street) may require the distributor to change the other price, as well, or create an exception record.

Modern, flexible/sophisticated price structures can effectively support changes in list/street prices without necessarily impacting prices at established customer.

Question #4: If front-line sales reps have pricing discretion, will the prices shown on the website be consistent?

The typical answer: Price overrides by sales reps need to be fed into the pricing system as “exception records.” Programming is put in place so that current and past overrides to the normal price appear to the customer on the website.

The challenge: Price exception records can build up over time and pollute the integrity of the price structure/system. They create more work and increase the likelihood of pricing errors. Price change initiatives may become challenging to implement (e.g., targeted price increases may not stick).

Accordingly, executing price changes may require extensive updates of the exceptions in the systems. Logical relationships, such as which customers should get higher or lower prices, may be hard to enforce. If input costs significantly increase and exception prices are not adjusted, transactions may occur at prices that yield negative margins. On the other hand, if market prices drop, old unadjusted exception records could show overly inflated prices.

Due to increased price transparency in the online channel, stakeholders (including customers) may be more prone to find such pricing errors – and if they do, they may either exploit them (if the pricing error is to their favor), complain about them or take other action based on them (customer defections). In distribution businesses where a significant portion of the sales volume is priced at exception record prices, effective price management can become a source of constant aggravation for all stakeholders. Extensive approval requests/exception prices are a sign of underdeveloped price structures, relative to what is needed for effective price management in the business.

Question #5: How can we prevent the competition from exploiting the visibility of our prices on our website and undercut our prices?

The typical answer: While list/street prices are available to the public, more sensitive customer-specific pricing data is only displayed upon proper authentication.

The challenge: If list/street prices and customer-specific prices are tied together by simple mathematical relationships (set discount percentages), then it may be relatively easy to reverse engineer the distributor’s actual price structure. Also, as noted above, customer-specific price lists may have little protection in the online space. Mechanisms to manage price transparency and safeguard digital price list assets can help.

While e-commerce may create challenges for distributors, strategies can be adopted to manage pricing in ways that effectively support both traditional and web-based business models. Part 2 of this blog series explores some of the proven strategies for pricing success in e-commerce.

Lee Nyari is managing partner of The Innovative Pricing Group, a consultancy offering strategic price management solutions for distributors. Lee is a seasoned distribution pricing executive with almost 20 years of experience leading strategic pricing projects. His deep distribution industry pricing background is coupled with engagement leadership roles at top-tier strategy consulting firms. Lee is a certified pricing professional, a certified public accountant, and he holds a full-time MBA in marketing strategy from Kellogg School of Management.