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MDM Classics: Grainger’s Pricing Woes | Modern Distribution Management

W.W. Grainger is recognized as a leader in distribution e-commerce, but in 2017 the company realized that its traditional list price model might be deterring potential customers. In one of MDM’s most popular Premium articles of last year, Lee Nyari, managing partner of The Innovative Pricing Group, a consultancy offering strategic price management solutions for distributors, reported on Grainger’s new pricing strategy for all 1.5 million SKUs on its website.

Grainger launched the strategy in an attempt to reverse unfavorable market share trends it experienced in certain market segments, particularly mid-sized customers in recent years, but the company saw significant post-launch declines in profitability. Although the company announced at the time that this trend was expected to reverse by 2019, it was criticized by many analysts, as well as Nyari, who wrote that the new strategy could be sub-optimal.  So far, 2018 financial results have been positive, and several analysts are now saying the company is seeing volume leverage from those cuts as well as regaining mid-sized customers.

What can distributors learn from Grainger’s pricing strategy? Nyari broke it down into three lessons for midsize distributors.

Review your price structure and segmentation schemes (not just price points) periodically

As business models and sales channels in your markets evolve, your price structures and segmentation schemes should as well. Efforts to set optimal price points are unlikely to succeed when rigid and outdated price structures and segmentation schemes are not aligned with changed, substantially more complex marketplace realities. Although you may be limited in what your systems and capabilities can support without substantial investment, moves toward even slightly more sophisticated price structures and segmentation schemes can yield significantly stronger returns.

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MDM Classics: Grainger’s Pricing Woes | 2018-12-04 | Modern Distribution Management.