By Craig Webb, President, Webb Analytics
Years ago, I met an LBM dealer who didn’t use price tags. When a customer brought a product to her store’s counter, she would look at them and then decide what to charge that person.
In a sense, that woman was ahead of her time. Artificial intelligence and other new technologies are making it possible for construction supply companies to set a different price for every customer in a way that generates much higher profits than what most dealers experience today. We’re already partway there whenever we submit a bid based on a material takeoff. Now we can refine that practice while adding new, customized pricing for retail customers. At a time in which sales and profits are down at nearly all dealers, such changes could make a big difference.
Big-box competitors are pushing dealers to get in the game. “We’ve never seen so many price changes at Home Depot and Lowe’s as we are now,” Greg Fuller, VP of Sales and Business Development at Do it Best, told reporters recently. “It’s increased by a factor of 4 or 5x.”
Vendors and distributors are contributing, too. Like most distributors, Do it Best regularly sends out changes to its suggested retail prices, driven in part by the competition. Fuller says Do it Best was sending out 3,000 price changes a week during the COVID epidemic. The co-op also is revising its planograms based on data indicating that a revised display—putting competitors’ products side by side, for instance—can add pennies to the profit dollar. Data is driving decisions.
Inspiration from Europe
Search bots that check competitors’ prices have been around a while, but now companies like Denmark’s PriceShape go beyond. They have added features like information on competitors’ stock levels, predictions on what will happen when you bundle products, and help figuring out what to include in your next big sale.
"We're working on understanding how can we use this multichannel [marketing approach, including the Internet] to understand what's happening in the market," Nicolaj Lund of PriceShape said Sept. 11 during a Webb Analytics-organized webinar on pricing.
While PriceShape works mainly on the retail side, England’s Bubo.ai also works with pro sales. It’s common knowledge that customers in general are sensitive to prices for some products and indifferent to the prices for others, but that they differ dramatically on which specific products matter to them price-wise. Bubo examines buying activity by those customers for each of the thousands of SKUs you sell and recommends prices designed to satisfy the customer while boosting profit.
Bubo says it can add three points to a company’s bottom line. That would be a monumental boost; the National Hardware & Paint Association’s latest Cost of Doing Business Study said the 26 LBM companies participating in this year’s report had an average pretax profit of 6.3% in 2023.
Digital Signage
Of course, attaching pricing tags to items even more frequently than today has zero appeal. But what if the price tags could be updated with a few computer key strokes? That’s part of the appeal of digital price tags.
Already popular at home centers outside the U.S., digital displays are still regarded as too expensive by many dealers. Nonetheless, they are being embraced by Ace Hardware and tested at Orgill, and The Home Depot, as well as smaller operations like Pennsylvania's Busy Beaver home centers.
Results are coming in now, and sometimes the conclusions are mixed: The Home Depot reportedly tested digital shelf displays on all its products at a store near Atlanta and ended up keeping them solely for the appliances. Display size sometimes make a difference here, as bigger shelf displays make it possible to deliver sales messages along with the price. Vendor involvement may help lower the cost in some departments, such as power tools.
Adam Gunnett, Busy Beaver’s Director of IT and Business Intelligence, said employees like digital tags because they regard repricing products as one of their most boring, seemingly time-wasting tasks. Digital tags also reduce the number of cases in which the wrong prices are on the shelves. And if you want to host a Ladies’ Night from 5 to 9 pm with varying discounts, digital price tags let you do both.
Sales vs. Consistency
All these opportunities for dynamic pricing come on top of one longstanding strategy—the big sale—but conflict with another: Everyday Low Prices.
Do it Best plans this fall to launch a series of monthly “PriceBuster” promotions in which the co-op’s members will have the opportunity to sell 10 products at dramatically lower initial costs. The goal is to attract customers, increase foot traffic, and drive up the average ticket.
Meanwhile, Jim Inglis continues to spread the gospel of everyday low prices. Inglis is a former EVP of Merchandising at The Home Depot and played a big role in the company’s growth. He said this about Everyday Low Pricing at the Sept. 11 Webb Analytics webinar:
“You do not need to run limited-time sales. Of course prices change because costs change, competitors change. But you should consider all prices permanent, not temporary based on some kind of limited time frame. In doing that, you send a message to your customers that there’s a good time to buy and a bad time to buy."
“The key is to define who’s your relevant competitor for that particular product,” Inglis added. “And then you have to ask yourself, ‘What do you want the customer to think about you and that product?’ … The right price is solely determined by customers’ perception. That’s the question: What are you telling the customer? If you want loyalty, you have to have the right tools to achieve that trust relationship. So, what I tell my clients and what we learned at Home Depot, is that Everyday Low Price is the best mechanism we could find to develop that trust relationship.”
The Real Bottom Line
Decades ago, Fuller competed with The Home Depot when he ran the All American Home Center in Southern California. In an era when home centers routinely would seek the same gross margin on everything in their store, Fuller noticed how The Home Depot would sell items at different margins. That’s because Inglis believes the key metric isn’t gross profit percentage, but rather gross profit dollars.
In a sense, Do it Best’s PriceBuster campaign supports that philosophy because the prices for goods that the co-op has negotiated with vendors are designed to make those products fly off the shelves. The bigger amount of gross profit dollars generated more than makes up for any concern about the margin.