Historically, commercial pricing programs in the office products industry had been based on a “discount from list” model. Various distributors and/or manufacturers would publish catalogs illustrating the products that they offer, including the manufacturers suggested retail, or “list” price. Dealers would purchase these catalogs, distribute them to their end user customers and offer the customer a “discount from list" shown in the catalog. These discounts typically ranged from 10% to 30%, depending upon purchasing volume, other services offered, etc.

This model worked fine for a long period of time due to the fact that virtually all manufacturers in the industry followed a similar formula in establishing their suggested retail prices. This formula incorporated the knowledge that the dealers actually selling the product would typically offer discounts to the ultimate end users of the product, so in effect, the “street price” of their product was substantially lower than the suggested retail price.

The introduction of low cost copiers, fax equipment, computers and printers into the office workplace beginning in earnest in the late 1970’s caused tremendous change in the office products industry. As technology related products became more prevalent in the workplace and demand for the consumable supplies for this equipment increased, the office products industry in effect merged with the technology supplies distribution industry. End user customers wanted to be able to purchase toner, ink, magnetic media and other tech related supplies and consumables from a single source vendor, who could also furnish their other office supply needs. This merger made sense, as the office products industry had been servicing the office workplace successfully for a long period of time. As a result of this merger, the products of many manufacturers who were new to the office products industry started to appear in various distributor catalogs. This trend is still continuing and will probably be an ongoing feature of the industry for many years to come. A number of these "newcomers" have now become well known brands. Among them: Hewlett Packard, Canon, Lexmark, Epson, Panasonic, Xerox, Sharp, Minolta and Brother.

The problem with the “single discount from list” pricing model resulted from the different marketing and distribution backgrounds of these new entrants into the industry. Most of these companies had already been active in various consumer markets and used a different approach to establishing their list prices. They typically set their suggested retail price at a level which would be a competitive “street price” that an end user should actually pay for the product in the marketplace. The result is that the margin between list price and the wholesale, and/or manufacturer direct price, does not allow the dealer to offer their traditional “discount from list” percentages, and still be able to sell the product profitably. In fact, in some instances, the dealer may only be receiving a discount from list of 10%, or even less, from the wholesaler or manufacturer. Other non-technology product manufacturers have also adopted the practice of establishing the list price at a realistic “street price” level. This, of course, complicates the traditional single discount-pricing model even more. Conversely, there are a number of product lines (primarily paper products) in which the end user price is not at competitive level even after applying discounts from list of 50% or more, simply due to the manufacturers differing philosophy in setting their list price.

A typical catalog supplied by a wholesale distributor may illustrate as many as 30,000 different items, covering diverse product categories such as office furniture, basic office supplies, office machines, technology products and janitorial supplies offered by over 500 different manufacturers. The reality is that it is now impossible to offer a single percentage “discount from list” pricing model that will accommodate the vast array of products in the marketplace, and be equitable to both the selling dealer, and the purchaser. The current situation has left office products dealers in something of a quandary as to how to establish their pricing programs. Over the years commercial customers have become familiar with the discount from list model, and it offers the added benefit of being able to easily calculate a selling price by simply applying a single multiplier to the list price of every item in a particular catalog (ex: 20% Discount - If list = $50.00 then $50.00 x .8=$40.00). Unfortunately, some questionable practices have arisen as a result of consumers wanting to remain on a “single discount from list” pricing program, and the dealer community no longer being able to sustain this model. Some of these practices are: (a.) Offering a catalog “discount from list” program with restrictions and exclusions. The end user may not be made aware that the exclusions list contains many thousands of items, and the auditing process can be expensive and time consuming, so often it goes unmonitored by the end user. (b.) Publishing a catalog with a fabricated “list” price. Almost all manufacturers furnish a Manufacturers Suggested Retail Price (MSRP), but the nomenclature may vary. Some resellers establish their own “list” price and represent that as the MSRP on low margin items. This practice is unethical at best, and fraudulent at worst, but it does allow the dealer to offer a consistent “single discount from list” catalog pricing program, although with an element of dishonesty. (c.) Convince customers to go with a “cost plus” model. The biggest drawback for the consumer under this model is that it is virtually impossible to audit and monitor, and there could be many ways to artificially inflate the dealer invoice cost and then recoup profit margins through rebates, incentives, etc. that would be virtually undetectable without an extensive audit of the dealership.

The above practices are hopefully fairly rare, but it is true that many dealers are trying to preserve the dysfunctional “single discount from list” pricing model that their end user customers want to maintain, simply due to their familiarity with this pricing method, and ease of it’s implementation.

Matrix pricing models have come into use in recent years as a direct result of the problems outlined above. It involves the use of a “matrix” that determines the proper selling price for a given product based on a number of different variables. Typically, national wholesale distributors utilize their extensive database capabilities to arrive at a “matrix” price, which they furnish to their dealers, who in turn offer to their end user customers. The goal of a matrix-pricing model is to offer the most favorable end user pricing possible on the most commonly purchased items, based on national statistics. Among the variables that are used to determine the matrix price of an item are: (a.) The number of “hits” an item receives. Each time a particular item gets ordered counts as a “hit”, regardless of quantity ordered. An item being ordered 10,000 times per day on average is obviously more commonly used than another item that receives only 50 “hits” per day nationally. (b.) Average quantity ordered. If an item is typically ordered in large quantities (ex: file folders, paper clips, ballpoint pens) it is determined to be a “commodity” item earning more aggressive pricing. (c.) Competitive surveys. These surveys determine which products are being promoted and aggressively marketed across the nation and take that information into account when establishing a “matrix” price.

The primary challenge to implementing a matrix pricing program is allowing the customer to easily determine their actual price without having to call and request pricing via fax or telephone. Obviously, a printed price list corresponding to a “list” priced 25,000 item catalog is one option, but the resulting price list would be very large and difficult to use, not to mention expensive and almost impossible to keep updated. Fortunately, the Internet and computer technology allow the problem to be solved in an effective manner. Matrix price lists may be made available to the end user via a web site and/or downloadable files (ex: .pdf, .xls) that the end user can conveniently and easily access.

In essence, the implementation of matrix pricing programs are an acknowledgment that the “single discount from list” model is no longer sustainable, given many thousands of products, made by hundreds of manufacturers, with vastly differing philosophies regarding establishment of their suggested list price, all being offered in the same end user catalog. It also allows the dealer to offer more aggressive pricing on the items that are most commonly used and/or have unrealistically high suggested selling prices, while avoiding the option of misleading the consumer or selling thousands of items below cost. The goal of implementing a matrix pricing program is to allow the office products dealer to offer their end user customers a competitive, fair, honest and workable pricing program, without forcing the dealer to resort to under-handed, confusing or deceptive programs in order to maintain the illusion that a “single discount from list” model is still workable.