Over the past three years, distributors have been grappling with significant pricing challenges driven by inflationary pressures, supply chain disruptions and unpredictable market volatility.
According to a report by Modern Distribution Management, distributors in industrial sectors have faced heightened demand variability, rising costs and margin erosion as inflation impacts both supply chains and customer purchasing power.
A Deloitte study highlights that 70% of companies reported severe disruptions to their pricing strategies during the pandemic, with many still struggling to recover amid ongoing inflation.2 These factors have placed unprecedented strain on traditional pricing models, leaving many distributors scrambling to adapt.
In such an environment, a balanced and integrated pricing approach is essential. The “3 Cs” — Cost, Competition and Customer Value — provide a robust framework for navigating these complexities. By aligning pricing strategies with internal cost structures, competitive dynamics and customer needs, distributors can make informed decisions that preserve profitability and enhance customer relationships. To fully leverage this framework, however, you need good data to ensure that pricing is both precise and responsive to rapidly changing conditions.
An Integrated Framework for Resilience
The 3 Cs represent three critical dimensions of pricing:
Cost: This element captures all expenses associated with delivering products or services, from raw materials and logistics to labor and overhead. During inflationary periods, cost increases can rapidly erode margins, making it crucial for distributors to maintain a clear and updated view of their cost structures. According to PwC, inflation has driven a 12% average increase in input costs across distribution sectors over the past year.3
Competition: Understanding competitors’ pricing strategies is essential for positioning products effectively in the market. Distributors must regularly monitor market trends and competitor pricing to avoid being undercut while maintaining differentiation in value propositions. A survey by McKinsey found that 56% of distributors struggle to maintain competitive pricing visibility, highlighting the importance of integrating competitor insights into pricing strategies.4
Customer Value: Pricing should reflect the perceived value that customers derive from a product or service. This requires a deep understanding of customer needs, willingness to pay, and the outcomes they expect. Value-based pricing ensures that prices align with what customers are willing to invest for the benefits they receive. Studies from Forrester show that companies that adopt value-based pricing see an average margin increase of 8-10%.5
While each “C” provides valuable insights on its own, the true power of the framework lies in its integration. A pricing strategy that simultaneously accounts for costs, competitive pressures and customer value allows distributors to adapt to market conditions without sacrificing profitability or customer satisfaction.
The Impact of Pricing Turbulence on Distributors
Distributors have seen the fallout of economic uncertainty in several ways:
- Rising Costs: Inflation has driven up the costs of raw materials, transportation and labor, squeezing already thin margins. 3
- Market Volatility: Demand has fluctuated unpredictably due to shifting customer needs and external shocks, making revenue forecasting a challenge. 2
- Increased Competition: Competitors are leveraging aggressive pricing tactics to win market share, often at the expense of long-term profitability. 4
These disruptions demand a more sophisticated approach to pricing — one that goes beyond reactive adjustments and leverages data-driven insights to anticipate and respond to changes effectively.
Why Good Data Is Critical for Managing the 3 Cs
The success of the 3 Cs framework hinges on having accurate, timely, and actionable data. Without reliable cost data, distributors risk setting prices that either erode margins or alienate customers. Similarly, without insights into competitor pricing and customer behavior, pricing decisions may fail to reflect market realities or customer expectations.
Advanced analytics tools and pricing software are instrumental in addressing these challenges. Platforms such as Zilliant, Vendavo and PROS enable distributors to integrate data from multiple sources — cost structures, competitor research and customer feedback — and apply sophisticated algorithms to optimize pricing. This ensures that prices are not only competitive but also reflective of customer value and responsive to market changes.6
Data also facilitates better segmentation. By analyzing purchasing patterns, distributors can identify distinct customer segments and tailor pricing strategies to maximize revenue and customer satisfaction for each group. For example, high-value customers may receive personalized discounts, while cost-sensitive customers might be targeted with value-focused bundles.5
Practical Recommendations for Distributors
To effectively implement the 3 Cs framework, distributors should consider the following steps:
Invest in Pricing Technology: Advanced pricing software provides the tools needed to monitor costs, evaluate competitive positioning and align pricing with customer value. These platforms also offer dynamic pricing capabilities, enabling real-time adjustments in response to market changes.6
Embrace value-based pricing: With a stronger focus on customer value, businesses have the opportunity to integrate value-based pricing principles not only in procurement by collaborating strategically with vendors, but also in sales by identifying and capturing untapped value pockets within their product portfolio.7
Build Data Competency: Equip your team with the skills and tools to collect, analyze and act on data. Accurate data is the foundation of all pricing decisions, ensuring that the 3 Cs are applied effectively and cohesively.3
Adopt a Collaborative Approach: Pricing is no longer just a finance function. Sales, marketing and customer service teams all contribute valuable insights into customer behavior and market trends. Breaking down silos ensures that pricing decisions are informed by the full spectrum of organizational knowledge.4
Focus on Value Communication: Ensure that your sales teams are equipped to communicate the value of your products and services effectively. When customers understand the benefits they’re receiving, they’re more likely to accept value-based pricing strategies.5
The current economic uncertainty has highlighted the importance of a robust and integrated approach to pricing. By leveraging good data, investing in advanced pricing tools and fostering cross-functional collaboration, distributors can develop resilient pricing strategies that protect margins, maintain competitiveness and enhance customer relationships. Those who integrate the 3 Cs effectively will not only survive but thrive, positioning themselves as leaders in their industries.
Sources
- Modern Distribution Management. (2023). “The Power of Strategic Pricing in Industrial Distribution.”
- (2022). “Pricing in Turbulent Times: A Strategic Response to Inflation.”
- (2023). “Managing Costs and Pricing Amid Inflation.”
- McKinsey & Company. (2023). “How Distributors Can Navigate Competitive Pricing Pressures.”
- (2023). “The Benefits of Value-Based Pricing for Distributors.”
- (2023). “Pricing Software for Modern Distribution Challenges.”
- Liozu, S. (2024). “Value-based Pricing: 12 Lessons to Make Your Transformation Successful”.
Stephan Liozu, Ph.D. is Chief Value Officer at Zilliant (https://zilliant.com/) a pricing management and optimization software company. He brings over 20 years of experience in pricing, innovation and value management. A highly accredited expert in the global pricing landscape, he is the accomplished author of over 15 pricing books, including “Pricing—The New CEO Imperative” (2021) and “Value-based Pricing: 12 Lessons to Make Your Transformation Successful” (2024)