What is Channel Pricing?
Channel pricing is the utilization of your various routes to market, or channels, in pricing decisions.
It’s been stated that the golden rule of channel pricing is that it’s not enough to merely base pricing decisions on the market. In other words, internal costs and competitive factors must also be considered.
If a business is using independent channel members then considerations must be made on how pricing decisions affect the behavior of these members. It’s ultimately up to channel managers to foster pricing strategies and ensure the proper cooperation is being promoted. If there is a conflict, it’s also up to them to minimize it quickly.
Viewpoints from other channel members on pricing strategies must be addressed as this is a crucial part of the price-making process.
Developing Effective Channel Pricing Strategies
Effective channel pricing strategies may look different across industries and individual companies but the primary considerations are:
Profit Margins
Channel members will need margins that can cover the costs of a product. This means that members will not carry out tasks to support product margins that can’t cover costs or even deliver profit.
The channel manager should review the progress of channel members to determine if the margin structures are adequate.
Roles of Resellers
The channel manager must set margins that may vary in functions. By varying in functions, different roles of channel members can take on certain responsibilities needed to run successful channels.
Certain questions need to be answered when reviewing margin structures, such as:
- Do channel members have inventories?
- Are purchases made in large or small quantities?
- Can they provide repair services?
- Is credit extended to customers?
- Is delivery an option?
- Do they train their customers‘ staff?
Competitors
When considering competitors‘ channel pricing, there may be several factors to consider.
Channel managers should weigh up any margin differentials between their competitors, especially when considering the support their business offers, and what support they should get from channel members.
If this relationship differs from their competitors, managers should review what is different in order to progress and compete with their rival’s pricing.
Product Variations
When prices are given to a particular product or range, it should be carefully considered when thinking about the features.
If the features are not carefully associated with the product’s price, it may be difficult for channel members to promote or even sell the product to the customer.
Price Points
Price points are usually how customers can associate themselves with the product at a retail level.
Prices should be carefully examined to review how many customers are accustomed to the product. Careful research can allow channel managers to understand how their products are seen in the retail market.
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Issues in Channel Pricing
Alongside an effective channel pricing strategy, channel managers can be faced with several pricing issues that may require more attention.
Finding Control in Channel Price
As pricing strategies need to be supported by channel members, they need to be implemented correctly.
Channel members view pricing as their most important feature when planning their strategy. If a manufacturer exerts control over a pricing strategy, channel members may feel there is an element of control over the pricing.
This can create possible conflict and potentially alienate some channel members. In order to avoid conflict, there are some guidelines to follow:
- Persistent approaches to controlling a channel price strategy should be avoided.
- A manufacturer should only approach the channel members to discuss pricing if they think it has could have long-lasting effects on the strategy.
- If the manufacturer thinks it’s necessary to enforce some control over the pricing strategy policies, it should be done in a friendly manner with clear communication.
Altering Price Policies
Handling major changes to the pricing policy can be quite difficult to manage for channel members.
Significant changes to the policy or terms of sale made by the manufacturer can cause unnecessary damage to the channel. To prevent potential conflict made by changes, clear communication is needed to avoid this consistently happening.
Introducing Price Increases Through the Channel
If prices change and pass through the channel smoothly, there may not be any issues.
But if the prices don’t fully pass through the channel, members may have to occupy some of the price increases by diminishing their margins. This could become a serious issue as channel members could begin to blame each other for the lack of communication in the channel.
Using Incentives
Channel pricing strategies are commonly used by manufacturers to promote their products. There is an extensive range of pricing tactics available such as:
- Special deals
- Seasonal discounts
- Rebates
- Reductions
- Coupons
Although pricing promotions offer attractive discounts, consumers‘ reactions may differ from retailers. The promotions offered to retailers by the manufacturer may not be as stimulating as it is for the consumer, which may discourage them from being involved in the deal.
With this approach, forward buying can become a problem for manufacturers. Forward buying is whereby channel members offer products at a discounted rate for just a limited time. The rest of the inventory is held by the wholesaler or the retailer, to be offered at full price after the promotion has ended.
Problems can arise when retailers and wholesalers take advantage of promotions to maximize their profits. This may not always help the manufacturer or the consumer and cause conflict in their relationships.
Expert Channel Pricing Solutions
Channel pricing can have a real impact on the progress of business and improve exposure to new customers.
Smarter pricing tools can also improve your data collection, allowing you to set your prices at competitive rates and maximize your revenue.
Vendavo’s pricing technology has been designed with these benefits in mind. We offer a range of options to businesses looking to improve their channel pricing with effective strategies.
Get in touch with our team today to learn more about channel pricing with Vendavo.
