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Pricing Strategy in a Recession - a case study

Sailing in the Storm – the Torrington Supply Story

Imagine that you dozed off and suddenly found yourself in one of the most economically depressed industries in America.  Then just when you felt it couldn’t possibly get worse, you discovered your particular region of the country was the struck doubly hard.  You watched as the broader economy fell into a sudden and severe recession and then your local market dropped by nearly 70%.  We are talking the businessman’s worst nightmare. 

Torrington Supply Company headquartered in Waterbury, CT is a wholesale distributor of residential, commercial, and industrial plumbing, heating and air conditioning equipment.   And, they rode through the very eye of the recessionary storm.

To benchmark how this economic tsunami affected others in their industry, we turned to the Profit Report of the distribution association serving Torrington’s market.  According to the report – the “typical distributor” in the northeast region lost money.  And across the country, those who fell into the lower quartile lost more than two bucks on their average sale.  To say these conditions weren’t good is like saying the Titanic had a nice orchestra.

With all of these factors in mind we checked in with Joel Becker, CEO and Jerry Molaver, VP of Pricing of Torrington Supply Company to discover how a scientific pricing process impacts their business. 

Early on in our conversation I asked, “What is the greatest benefit of using the Strategic Pricing Associates model in your business?”  The answer nearly struck me dumb. 

“Without this process, our margin levels would have followed the general market direction and dropped.  Instead we’ve been able to maintain our margins and in some cases they are actually up.  The recession has made business much more competitive and driven prices and margins down.  For us, SPA made the difference between losing margin and actually gaining some margin improvement.”

Torrington Supply Company has historically put technology-driven processes to work as a competitive advantage.  For instance, the company uses activity-based costing as a tool for making decisions around individual customers.  Torrington is also an active member of Activant Solution’s Eclipse users group.  So when the user’s group discussed a new technology for building a pricing strategy – Torrington began a cautious investigation.

Joel confided that he looked at other models for a pricing process.  But he felt the SPA/Activant team provided a solution that eliminated costly data handling/manipulation by his company’s IT staff.  The genius of integrating Strategic Pricing Associates software into Torrington’s Eclipse Software made for a relatively easy implementation.  

Once Eclipse had the software in place, it took Torrington less than 60 days to go live.  Specifically, their strategy involved bringing customers into the program in five groupings based on customer size (tiny to large). 

Understanding the value a company delivers to its customers is crucial in an effective pricing program.  Most companies want to price fairly which means balancing what the customer is getting vs. what they are paying for.  This has become more than just a selling strategy – it’s becoming part of the organizational DNA.  A deep understanding of value affects how the company thinks about special orders, non-stocks and inventory in general. 

Mr. Becker reports, “We understand the services we provide which is directly related to our pricing policies.  Companies that either don’t offer any added-value services or don’t value the services they offer usually sell at lower margins.  In the first case it’s a strategy of matching value to price, however in the second case it’s a formula for losing money.”    

As I heard these words, it dawned on me.  Here is a company with a strong track record in building system oriented processes.  As an upper quartile performer in numerous distributor association Profit Reports, they understood the need to be on the cutting edge of distributor trends.  I had to know; what had the Strategic Pricing Association process do for them that they couldn’t do themselves?  Here is Mr. Becker’s answer:

“Prior to implementing SPA we had a pretty good idea of how to manage prices manually, but we only had time to look at the larger customers and fastest selling products.  The almost unlimited combinations of customer size, type and product velocity force a distributor to triage their pricing management by spending time on big customers and fast moving items.  What the SPA system does you just can’t do yourself.  The number of price combinations in our industry is just too complex.  In our business we have over 35 customer size & type combinations and thousands of product categories and velocities.  Manually managing this data would be impossible.”

For businesses like Torrington Supply Company, decisions rooted in data and ongoing metrics separate the high performers from the rest.   Creating enhanced productivity is a bell weather of the business and making these types of decisions with fewer people is an incremental piece of the productivity game.  Building automated systems designed to drive better decisions has to be part of the future. 



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