False Profits

Tag: distribution industry

  • Price Moves Business. Relationships Keep It.

    Price Moves Business. Relationships Keep It.

    On a recent call with the president of a wholesale distributor—a $200-million access-control company with 34 locations stretching from Seattle to Miami—he said something that immediately stuck with me:

    “Price moves business. Relationships keep the business.”

    It’s a simple statement, but it captures one of the biggest truths (and tensions) in distribution.

    The False Choice

    Too often, companies treat pricing strategy as a philosophical debate: “Do we want to be the cheapest, or do we want to be a relationship-based company?

    ”The truth is, that’s a false choice. Every distributor lives in the tension between price, relationship, and value. Those levers constantly shift depending on the customer, the product category, and the competitive situation.

    When Price Does Move Business

    That president is right—price does move business. But not every price.

    It’s the price on your most core, highly visible items—the SKUs your customers buy mostoften and know best.

    Just like grocery stores don’t advertise cheap toothpicks, they advertise cheap milk and chicken—because those are the items that drive store choice.

    For distributors, those “milk and chicken” SKUs might be conduit, gate operators, or wiring devices—whatever products anchor your customers’ spend and mindshare. You must be competitive there.

    Where Price Doesn’t Matter (As Much)

    On the other end of the market basket—the hundreds of low-volume, infrequently purchased items—price sensitivity drops dramatically.

    No one is switching suppliers over being a few points high on an item they buy once a year. But optimizing those “tail” items can drive significant, sustainable margin gains.

    That’s where strategic pricing earns its keep: knowing where you can hold margin confidently, and where you can’t afford to be out of line.

    The New “Value-Add”

    In that same meeting, the VP of Sales & Marketing added another insight:

    “Customers love value-add, but it’s become table stakes.”

    He’s absolutely right. The “value-adds” distributors once promoted—local inventory, delivery, technical support—are now the minimum.

    Amazon has redefined what “easy to do business with” means. Differentiation now comes from understanding where customers truly perceive value—and aligning your pricing, communication, and experience accordingly.

    The Balance That Wins

    Price matters. Relationships matter. Value matters.

    But none of them exist in isolation.

    The best distributors aren’t asking, “Which one do we choose?” They’re asking, “Where should we lean heavier right now?”

    Because in a world where price moves business, relationships still keep it.

  • Margin Myth #1: Lower Prices = More Sales (and Profit)

    Margin Myth #1: Lower Prices = More Sales (and Profit)

    “For every complex problem, there is an answer that is clear, simple, and wrong.” – H. L. Mencken

    It’s easy to believe that if you lower prices, sales will go up. And to some extent, that’s true. But like most half-truths in business, it’s also dangerously misleading.

    This belief—lower price = more sales—is a perfect example of a simple answer to a complex problem. It’s easy to understand, easy to justify, and often backed by feedback from the field. Unfortunately, it often leads to a quiet but significant destruction of profitability.

    The Appeal of Simplicity

    Sales teams hear it constantly: “Your price is too high.”

    When sales slow down, it’s tempting to see that objection as truth. Over time, that repetition builds cognitive bias:

    • Recency bias: Recent feedback weighs heavier.
    • Confirmation bias: We interpret new information as proof of what we already believe.
    • Availability bias: We rely on the most readily available explanation.

    Eventually, sales teams start believing that price is the reason they’re not closing deals—and that if they just had lower prices, sales would take off.

    The 8.5% Margin Mistake

    I worked with a specialty distributor who learned this lesson the hard way.

    Over a 6-month period, their sales had dipped to around $1.2 million, which represented a 16.1% decline in average monthly sales compared to the previous year. Margins held at about 35%. Feedback from the sales team and customers was consistent: “Your pricing is too high.”

    So, in an attempt to regain momentum, they made a bold move—cutting their general matrix pricing down to 26.5%, an 8.5-point drop in gross margin.

    What happened?

    They saw a modest 4.5% increase in sales. But their gross profit dollars dropped by roughly $15,000 per month.

    They gained a little on top line—but lost big on the bottom line.

    Why This Happens

    The problem isn’t that price doesn’t matter. The problem is believing it’s the only thing that matters.

    In most B2B buying decisions, price is just one part of a much larger equation. Buyers also weigh:

    • Inventory availability
    • Delivery speed and accuracy
    • Ease of doing business
    • Invoicing and returns
    • Relationship and trust
    • Brand familiarity
    • Risk of switching suppliers

    When a distributor offers the lowest price—but isn’t the preferred partner—that quote usually becomes leverage. The buyer brings it back to their existing supplier, who sharpens their pencil just enough to keep the business. The original distributor? They never see the order.

    “If two people want to do business together, price is not going to be a problem. However, if one of the two doesn’t want to do business with the other, price is always going to be a problem.” – Jim Cathcart

    What the Math Actually Says

    Here’s where it gets real: If you’re a 30% margin company and give a 10% discount, you now need to increase your sales quantity by 50% just to earn the same profit.

    That’s a massive lift.

    It’s easy to say sales will go up.
    It’s incredibly hard to increase sales by 50%.

    To make the same $12,000 in gross profit, you now need to sell $150 worth of product at the new price.

    So What’s the Better Approach?

    Rather than broad, reactive discounting, consider this:

    1. Get strategic about who matters
      Focus on key accounts, high-potential customers, and those willing to grow with you.
    2. Understand what drives their behavior
      Every buyer has a handful of products that drive their purchasing habits—high-volume, high-frequency, planned spend. Think “eggs, milk, and diapers.” Be sharp on those.
    3. Avoid the trap of across-the-board cuts
      Not all items need aggressive pricing. Lowering prices on less influential items won’t win you more business—it just erodes margin.
    4. Use price as a scalpel, not a sledgehammer
      Be competitive where it counts. Don’t slash where it doesn’t.

    The Bottom Line

    Yes, lowering price can increase sales. But if you’re not careful, you’ll sell more, work harder—and make less.

    In most cases, especially with across-the-board cuts, price reductions are a shortcut to shrinking profits. The key is not to be the cheapest. The key is to be the smartest.

    Pricing isn’t simple. And treating it like it is? That’s a myth that will cost you.