Any reseller needs to make a profit. When suppliers offer the lowest prices with discounts or rebates in the face of stiff competition, they help to drive down profitability for the industry. A reseller without an overall strategy will simply copy other reseller programs, seeking to attract customers by offering the best price. Those who do not balance loss leaders with a line of core products with a healthy profit margin will struggle to succeed over the long-term. To not only stay afloat, but have a comfortable margin, hardware resellers need to decide on a pricing strategy that will keep their business competitive.
Consider More with Channel Pricing
Insightful resellers know how to streamline their operations and protect their profits. Those assuming a leadership position will reduce operating costs, improve the efficacy of their supply chain, and make customer satisfaction a priority. They realize that to stay competitive, they need a pricing strategy that adjusts with today’s demands. Channel pricing is one pricing plan that can benefit the reseller.
Let’s look to compare traditional pricing vs. channel pricing. Traditional value pricing that takes into account only the set price of a product fails to consider the customer’s experience. The customer’s interaction with the distribution channel helps to build repeat business. Channel pricing maintains a level of consistency in the amount of compensation that distributors can expect upon a sale. Will a reseller focus on a supplier brand, or have a different strategy in place? With channel pricing, investments are made into activities that create demand while reducing inefficiencies in the supply chain.
Resellers benefit from channel consolidation. Resellers can receive additional concessions from suppliers that can be passed on to the buyer or fatten their margins. The largest cost of a supplier and reseller interaction is the discount paid out to distributers. Channel pricing programs, such as rebates, commissions, allowances and rebates, impact the bottom lines of suppliers and resellers. Suppliers and resellers that adhere to channel pricing help to maintain decent profit margins for both parties and the industry as a whole. Three channel pricing strategies can position the reseller and provide increased margins.
- Take advantage of functional discounts. Pay for what functions are typically used. Many supply chain entities can perform functions (inventory purchase, sales, support and credit management) more effectively that a single traditional distributor or entity. Use discrete logistics providers, representatives and call center support. Once the functions are unbundled, organizations are at liberty to select the best provider for each function. The traditional discount is unbundled and each separate entity receives a smaller part of the once traditional discount.
- Activity-based pricing is a boon. Prompt payment discounts help the reseller return revenue to their organization quickly. Such a discount motivates the behavior of the buyer and reduces financing costs. Activity-based pricing looks to alter the motivations of buyers and have them display a desired behavior faster. Every organization wants faster conversions, such as a purchase. Activity-based pricing is one way to get it.
- Resale price setting is a consideration for those offering products with a strong brand position. Organizations that use high-share, luxury brand suppliers benefit from this strategy. A minimum set price is given to any partners. This reduces channel pricing conflict and maintains a consistent and expected pricing policy. Apple produces such a product, and resellers do not have much leeway in altering a minimum set price. Organizations that use high-share, luxury brand suppliers benefit from this strategy.
It is a priority for a reseller to determine its objectives. In addition to sales, is the organization looking to reduce transaction costs, build awareness, or reduce the length of the buyer’s cycle? Create a system of support with the logical alignment of pricing strategy to organizational objectives.
What is a Reseller to Do?
It is a priority for today’s reseller to find the right pricing to engage their audience and offer value to a segmented customer base. There are times when suppliers need to implement a pricing structure that offers them the ability to stand out. Suppliers that are new to the market and need to gain some traction might undercut the competition, in terms of low-ball pricing, to gain awareness among consumers. This approach will not be sustainable when used for all products over the long-term.
At other times, market leaders must force the industry to change their mindset and their approach. Apple is a company that makes it difficult for resellers to offer low discounts. Discounts are minimal, but resellers can provide a product to consumers that has high brand recognition and lines of accessories. Bundling products may offer another way to attract such a consumer. Unbundling functions help organizations effectively leverage the services that they use. A review of the audience, hardware and planned special offers need to be balanced with direct and indirect costs of the organization. Channel pricing might be the perfect solution.