Wholesale pricing

Following the recent NotionalAmerican Vholesale Lumber Assn, conoention in Hawaii in February (see The Merchant, March, p. 16) the executiue committee released the lollouting positinn N.per on Functinnal Prbing.'In it, the wlwleslcrs state their urwnirnow supryrt lor an acrossthe-board, return to lurrctional pricing and their reoommendations on how it should, be done. The poper, in its enti r ety, I ollow s.- Edin r.

Functional Pricing

After many montJrs experience, the wholesalers are convinced that the manufacturers who changed from functional pricing have created an impediment to the orderly marketing Process.

The wholesale distribution function is essential in tJre free enterprise system. This function. not the institution" endures. Whether performed by manufacturers selling direct, co-ops buying direct, or by the wholesaler, the essential function adds value. Adding value entails necessary costs.

The primary distribution function is a flexible combination of services designed to meet the requirements of the various markets for wood products and, within these markets, the various classes of customers. Consequently, the required margin to cover the measure of value added would also be variable. Nevertheless, long established trade practice has made the customary 5%, 6/o or B/o on lumber the base from which differentials for types of business or class of customer are figured. Shippers and customers understood and accepted this method. Price lists and price re porting services reflected the practice.

During 1971, the increasing number of mills changing to net pricing provided opportunities to observe the efiects which lead to the conclusion that the functional pricing system is vastly superior. For example:

(I) Subscribers to price reporting services are found at every level of the industry and among all types of customers. Price reports reflect what the publishers believe to be the most prevalent method of pricing. Currently, many items previously reported with functional discounts are now reported at net levels with the result that the salesman on the firing line faces a formidable sales obstacle. This recendy-created obstacle tends to depress the selling price because price pressure reverts to the manufacturer as the wholesaler is forced to negotiate for an adequate margin to cover the oat of the value he adds.

(2) The production and marketing functions operate with greatest efficiency when the interdependence oI the manufacturers and wholesalers results in a parrrership approach to distribution. The failure of pro. ducers to recognize that their primery sales arm must have opportunity for adequate com. pensation interferes with the smooth supplier-distributor relationship essential to mutual success.

In response to the experienced counsel of NAWLA wholesalers, the executive com.rnittee strongly advocates that, where necessary, producers take immediate steps to reinstate the functional method of pricing. Based on the number of expressions leading to the formation of this posi tion, it is anticipated that the 340 member wholesale firms will be individually urging their suppliers to implement this system at an early date.

In consideration of the preference expressed by some manufacturers to confirm and invoice at net prices subject only to 2/o cash discount, we recommend as a reasonable compromise:

(f ) Ail quotations and price lists to include the functional discount.

(2) At the manufacturer's option, quoted functional prices may be converted to net basis for the purpose of sales confirmations and invoices.

Further, we strongly urge that manufacturers who elect to perform the wholesale function themselves retoin the wfuienle allowance in recognition of the fact that they have incurred tJre additional costs of primary distribution.