Leveraging Channel Pricing

By Amy Radishofski, Features Editor, Manufacturing.netWhile selling through channels can give a manufacturer access to a bigger market, it can also muddle the sales process and keep them from reaching their full profit potential.

There are certain benefits for manufacturers that sell through channels, including expanded reach for sales or products and lower cost of sales. However, as companies go through channels, they may lose visibility in their supply chain, which could cost them.

“Companies should think of their channels as an extension of their sales chain,” said Jamie Rapperport, Founder and Executive Vice President of Marketing and Business Development for Vendavo. “They need to be engaged and have strategies through to the end customer.”

Unfortunately, not all companies have such strategies, and it can affect their profitability.

“When it comes to channels, companies can market to a bigger customer base, but sometimes handoffs from manufacturers to distributors can cause a loss of visibility,” adds Chase Powell, Business Consultant with Vendavo.

After a recession, companies should be focusing on their pricing strategies and closing the sale. However, if the manufacturer is not dealing directly with the consumer, they may not be appropriately pricing their products.

“They don’t know what happens behind the curtain,” Rapperport says. “They have different customer segments that may need different pricing options that a distributor may not realize.”

Moreover, particularly after an economic downturn, companies are continuing to cut costs and may not want to add to their sales staff. Powell suggests companies leverage their channels to boost sales without increasing headcount.

“Different customers value a manufacturer’s products in different ways,” Powell says. “Companies and their channel partners should be flexible and set prices for those different customer segments.”

Having a pricing structure in place and being willing to negotiate with certain customers can help boost sales and increase efficiency in the channel.

“It takes more work to negotiate prices with single customers or customer segments, but the manufacturer doesn’t have to give everyone the same price,” Rapperport said. “Companies can create structures for certain types of sales where the channel seller needs to negotiate the price, which can provide a benefit to the manufacturer and to the customer.”

Adding complexity to the sales process may not sound like something a manufacturer would want to do, but if they can create an efficient system, it will cut down on the number of problems that may arise from an administrative perspective.

“A manufacturer’s channel should be considered an extension of the company’s overall corporate and sales strategy,” Rapperport added. “And they should keep an eye on their channel strategy as the company grows or the market shifts.”

Manufacturers can’t afford to become complacent -- They must adjust for market changes to ensure the efficiency of their channel pricing. They also must work closely with their channel partners.

“Distributors and contract manufacturers are a company’s partners when it comes to selling through channels,” Powell said. “It’s important to establish a good relationship with them and construct deals efficiently in order to get the maximum benefit out of channel pricing.”

But what if one customer segment is outperforming another? How can a manufacturer change buying behavior to improve a struggling segment?

“Consider using rebates or incentives tied to certain behaviors,” Rapperport suggests. “If a company wants to achieve a certain volume target in a particular customer segment, they could try offering a lower price to channel partners that can help make that happen.”

Once companies get visibility into their channel sales and get information about their end customers’ buying behavior they have to be able to analyze the results.

“Analyzing the behavior can help manufacturers capitalize on areas of their business that may not be reaching their full potential,” Powell notes. “If they can use the information they receive to figure out why something isn’t working then they can add more profit.”

Vendavo provides price management and optimization software for business-to-business companies worldwide. For more information, visit http://www.vendavo.com/company.html

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