1. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 1 Gas & Supply Lori Kneeppel, Marty Kearns & David Dewey December 30, 2010 Presented by Brent Grover

2. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 2 ✤ NAW Institute Fellow ✤ Author of six NAW books ✤ Distribution CEO ✤ Business school faculty ✤ International firm CPA Brent R. Grover Evergreen Consulting, LLC 29525 Chagrin Boulevard, Suite 214 Cleveland, OH 44122 brent@ evergreen-consulting.com (216) 360-4600 ext.101

3. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ About Evergreen Consulting 3 ✤ Distribution experts ✤ Strategy and profit improvement tactics ✤ Clients exclusively in distribution channel ✤ Team of experienced staff devoted to pricing projects ✤ www.evergreen-consulting.com

4. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 4

5. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ Distributor Pricing Chaos ✓ - list 5 Large number of customers Large number of items No one person accountable for pricing Sales staff sets prices autonomously; lack market info Large number of people involved with pricing Poorly-defined pricing structure & processes Large number of special pricing records Sales reps incented to maximize volume Recommended selling prices unrealistically high ERP system pricing module underutilized

6. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ Distributor pricing waterfall Percentage of list price

7. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ Distributor pricing bands % of dollar volume in each pricing band Pricing bands

8. © 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 8 Building a pricing structure from chaos ✤ 8000 SKUs ✤ 3000 customers ✤ 100 product classes ✤ 60 days ✤ 20 sales reps + 10 inside sales / customer service ✤ 6 customer segments ✤ 5 customer sizes ✤ 4 levels of price sensitivity ✤ 1 true market price for each customer/SKU

9. © 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 9 Objectives ✤ Find 200 basis points (2%) or more of hidden gross margin ✤ 200 BP margin gain increases ROI by 10-15 %points ✤ Base pricing on customer value, not drive by product cost ✤ Build foundation and strengthen structure in the pricing system ✤ Rethink your sales compensation plan and sales training

10. © 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 10 Pricing analytics ✤ Make order out of a highly complex, chaotic environment ✤ 3000 customers X 5000 SKUs = 15,000,000 combinations ✤ How much pricing responsibility is delegated to the sales team? ✤ Segment customers and products for pricing purposes ✤ Determine item sensitivity ✤ Design a business intelligence cube for your ERP system

11. © 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 11 Distributor pricing scatter diagrams Customer Size GTM% Customer Size Desired orderly pattern Typical chaotic pattern

12. © 2009 Evergreen Consulting, LLC All RIghts Reserved Sacred Cows of Distribution™ Premiums Discounts Average Margin Premium/Discount Cube Margin % Customer Size Segment, Size, Sensitivity Distributor Pricing Architecture 12

13. ©2009 Evergreen Consulting, LLC STRATEGIC PRICING MATRIX CHEMICAL PLANTS segment margins for a sample SKU VERY SMALLSMALLMEDIUMLARGE EXTRA LARGE VERY HIGH24%21%18%15%12% HIGH25%22%19%16%13% MEDIUM31%28%25%22%19% LOW33%29%26%23%20%

14. ©2009 Evergreen Consulting, LLC Matrix for each segment Minnow s SmallMediumLargeWhales Most sensitive +4+1-2-5-8 More sensitive +7+4+1-2-5 Less sensitive +10 +7+4-2 Least sensitive +13+10+7+4+1

15. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 15 BASE CASE150 BPS200 BPS SALES$50,000,000$51,000,000$51,370,000 COGS$37,500,000 GM$$12,500,000$13,500,000$13,870,000 GTM%25.0%26.5%27.0% EXPENSES$11,500,000$11,700,000$11,775,000 PRETAX NI$1,000,000$1,800,000$2,095,000 ROS%2.0%3.5%4.1% EQUITY$7,000,000 ROI%14.3%25.7%29.9% Profit Power of Strategic Pricing Frozen

16. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 16

17. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 17

18. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 18

19. ©2009 Evergreen Consulting, LLC Upside for each segment Minnow s SmallMediumLargeWhales Most sensitive More sensitive Less sensitive Least sensitive

20. © 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 20 ✤ Cell phone: universal connectivity fee, taxes ✤ Rental car: airport fee, tourism fee, taxes ✤ Airline: baggage, food, taxes ✤ Car dealer: environmental fee, shop supplies ✤ Tire dealer: mounting, balancing, disposal ✤ Online e-tailer: freight, handling ✤ Distributor: freight, handling, small order charge, energy surcharge Price partitioning examples

21. © 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 21 About Gas & Supply ✤ What are your pricing metrics? ✤ Customer base – size, segment breakdown ✤ Product lines – SKU count, vendors ✤ Activity – transaction volume, order size ✤ How many people involved in pricing decisions; how much pricing autonomy ✤ Opportunities ✤ Improve pricing consistency – attack outliers ✤ Find your profit leaks: less visible items, freight recovery ✤ Analyze segments ✤ Segment opportunities differ ✤ Set targets for each territory and help you realize your opportunity

22. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ Analytics – fix outliers Process improvements Greater consistency (80%) Analytics – low visible, less popular SKUs Premiums on less sensitive items (10%) Freight recovery, add-on charges New revenue opportunities (10%) 22

23. © 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 23 FAQs ✤ Speed to results depends on how aggressive management is ✤ Sustainability is dependent on management’s commitment ✤ Strategic pricing is an exercise in analytics + change management ✤ Up to 2 weeks of your staff time needed over 1-2 months ✤ Gain-sharing or a fixed fee

24. © 2009 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 24 Project team ✤ Brent R. Grover – Managing Partner & Strategic Pricing Leader NAW Institute Distinguished Fellow, CPA, 20+ years distribution executive, author ✤ Kenneth G. Brown – Partner & Project Team Leader 20+ years distribution & supplier sales and executive experience ✤ Emily Martin – Project Consultant 10+ years distribution executive experience ✤ Jane Williams – Systems Analyst 10+ years distribution IT programmer, analyst and IT manager experience ✤ Marty Gawry – Project Consultant 10+ years corporate project management experience

25. © 2010 Evergreen Consulting, LLC All RIghts Reserved Strategic Pricing for Distributors™ 25 “We wrote the books on distribution management.” ™ Brent R. Grover Evergreen Consulting, LLC 29525 Chagrin Boulevard, Suite 214 Cleveland, OH 44122 (216) 360-4600 ext.101 brent@evergreen-consulting.com www.evergreen-consulting.com