Pricing Remains on Center Stage

May 10, 2002
It seems like such a simple equation for manufacturers: price a product and get that price to distributors and their customers. But as Bill Gudie discovered

It seems like such a simple equation for manufacturers: price a product and get that price to distributors and their customers.

But as Bill Gudie discovered when he began building Trade Service brick-by-brick 70 years ago, and as the folks at IDEA, i2 and Material Express know now, there's a lot more to pricing in the electrical business than meets the eye.

In its cover story this month, Electrical Wholesaling explores the complexities of pricing in the electrical industry. Seventy years ago, electrical distributors and manufacturers debated the need for a centralized source for accurate pricing information. The debate rages on. Just ask Mike Rioux, president of the Industry Data Exchange Association (IDEA), Rosslyn, Va.; the folks at i2 Technologies Inc., Dallas, who work closest with the company's Trade Service pricing service; or Doug Smith, vice president of sales for Material Express Corp., Encinitas, Calif., a new company offering a pricing service that competes with the i2/Trade Service offering.

One reason pricing is such an emotional issue for the electrical wholesaling industry is because Trade Service Corp. is so interwoven into the fabric of the industry's history. For most of its 70 years, the company has had relatively little competition in this industry in the pricing. Opponents to centralized pricing say a third-party company should not have the authority to interpret manufacturers' pricing, but no one could dispute the fact that the market needed — and still needs — timely, accurate pricing information. The customer demand for the service that Trade Service has provided over the years cannot be underestimated, said Dick Noel, who has followed the pricing scene in the electrical industry as closely as anyone for the past 50 years. “Trade Service was always ubiquitous. Any time a distributor opened up, it didn't take them long before they became a Trade Service customer.”

Today, there's a new competitor on the scene: Material Express. When Trade Service itself was acquired in 2001 by e-business giant i2 Technologies Inc., Dallas, some in the industry saw an opening to offer a competitive pricing service. Among them was Doug Smith, who worked for Trade Service for years in sales.

Smith and several other Trade Service executives left the San Diego-based operation seven years ago to start up VisionInfoSoft, also based in Encinitas, Calif. Initially, VisionInfoSoft offered a pricing service and estimating package to electrical contractors, and now has 6,000 users of its estimating software. But Smith saw the changes and reports of layoffs at Trade Service as an opportunity, and in August 2001 launched Material Express.

This year, the company launched two pricing products under the Material Express banner: EPIC (Electronic Price Information Catalog) and APEX (Advanced Pricing Electronic Exchange). “EPIC is a stand-alone system and doesn't integrate with distributor software,” said Smith. “It compares to the old Trade Service price books. APEX integrates right into the distributor's business software.”

Smith said Material Express now has several hundred distributor users onboard and is proud that the company recently won endorsements from three of the four largest buying groups: IMARK, Oxon Hill, Md.; Equity Electrical Associates, East Walpole, Mass.; and Electrical Distributors Network (EDN), Concord, Ohio. He is in discussions with Affiliated Distributors, and hopes to get its endorsement soon.

“We are not trying to put anyone out of business, but the timing is right and our company is strong,” he said. “The future is wide open.”

Another relatively new player on the pricing scene in the electrical business is i2, which acquired Trade Service's pricing business — and specifically its PFMS (Product File Maintenance System) database — last year. Trade Service's critics are quick to point out that the company was acquired by an e-business colossus from outside the electrical industry, and that i2's primary business interests are not pricing.

Although other manufacturers and vendors in the electrical business have farmed out some back-office functions overseas because of cheaper labor, i2's critics also like to point out that the company moved much of the price editing work that was done in Trade Service's San Diego headquarters to Bangalore, India.

Don Lesem, i2's vice president of content product development, has worked with Trade Service during his days with Howard W. Sams Co., Indianapolis, and he was on the acquisition team at i2 that bought Trade Service. Lesem defended i2's use of data editors in India. He said i2 had company-employed data editors in India for years before acquiring Trade Service, and that i2's operations in India were integral in building its database for the electronics industry. He also said that i2 is hardly an outsider in the pricing game because of its experience developing its 7-million SKU pricing file for the electronics industry. Additionally, Lesem said i2 has given Trade Service access to resources that it never could have had on its own.

“We took what we were doing in the i2 content business and bring it to Trade Service,” he said. “We have expanded the capacity and capabilities. We can build more data faster than Trade Service used to be able to. We have a large content operation with about 700 to 800 employees.”

IDEA has a different take on handling pricing information than i2/Trade Service and Material Express. One of the core selling points for IDEA and its Industry Data Warehouse (IDW), which went live in 1999, is that manufacturers control their own data, said Mike Rioux, IDEA's president for the past two years. “Our customers (distributors) are looking for information directly from the source. They don't want to get information that may not necessarily be from the manufacturer, or that has a disclaimer with it. We are getting almost 65 percent of our information directly from the manufacturers. They own it. They control it. They update it, and they are responsible for everything.”

Currently, 42 manufacturers of the more-than-80 manufacturers subscribing to IDEA supply direct data feeds into the IDW with this information. While these numbers are not large in relation to the total number of manufacturers in the electrical market, Rioux said these companies are among the largest in the electrical manufacturing community, and that they are in the product areas that account for the bulk of distributor sales.

The total electrical product database in the IDW is over 800,000 SKUs. IDEA works with i2/Trade Service to supply the 35 percent of its database not yet provided via direct feeds from manufacturers. However, Rioux said once a manufacturer begins providing a direct data feed, it no longer takes in the i2 pricing and product information. i2 does have access to the entire IDW database and can use it to update its own product records.

Lesem and Rioux have been able to look past the contentious relationship that IDEA and Trade Service had in the early days of the development of the IDW, and agreed that i2 and IDEA are now exploring other avenues of cooperation. They hinted that the two entities might be able to work together with i2's “attributed data,” which offers longer product descriptions, images and other product information in a standardized format. Lesem said i2 is almost finished providing these attributes to its 1-million-plus SKU electrical product database.