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It’s best to define your positioning, create your brand strategy, and identify your distribution channels before you develop your pricing strategy in the marketing plan. By doing so, you’ll ensure that your pricing reflects your value and reinforces your brand.
For example, if your method for delivering value is product leadership, you shouldn’t discount heavily or compete on price; you should also minimize pricing conflicts with any channel partners.
With vertically differentiated firms, the changes in channel structure have asymmetric effects depending on whether they occur in the high-quality channel or in the low-quality channel. The product quality of the high-quality channel decreases when it decentralizes unilaterally. However, product quality of the low-quality channel would increase when it decentralizes. The high-quality manufacturer and its channel suffer more from decentralization in comparison with their low-quality counterparts, and the low-quality manufacturer actually receives greater profits when both channels are decentralized. An important driver behind these asymmetries is the interaction between firms’ pricing incentives in integrated versus decentralized channels and what consumer segments they serve !!!
Channel pricing is one of the least understood and most complex aspects of a supplier’s go-to-market strategy. To develop an effective strategy, suppliers must establish discount levels for various customer segments and multiple channels serving each segment. In addition, e-commerce and evolving logistics capabilities are changing the roles that partners perform and, therefore, the compensation that they should earn. Channel power, conflict, and competition further complicate the development of effective strategies. To be economically rational, a strategy must consider go-to-market costs. Suppliers, however, have different costs to serve each channel and partner. Furthermore, distributors, retailers, and other channels have unique cost structures and value propositions of their own.
Given this complexity, it is no wonder that many suppliers simply copy their competitors’ programs or remain paralyzed by indecision. With no underlying rationale, suppliers drive down their own and their competitors’ profitability by offering deeper discounts, rebates, and allowances. At best, many suppliers resort to a rash of special deals that are costly to manage and represent no overall strategy.
Progressive suppliers understand channel pricing. They take a leadership position to protect their own profits and profits throughout their industry. A leadership position can lower operating costs, improve customer satisfaction, and accelerate growth. Suppliers without a well considered strategy subject themselves to continued margin erosion and the dissipation of their value to the channel and to the customer.
Channel pricing is fundamentally different than traditional pricing. Traditional pricing sets the value of a product or service to customers in a competitive market. While value pricing is important, it is not sufficient. The value of a product or service depends on the customer’s entire experience including the interaction that the customer experiences with the distribution channel. If the supplier does not get its channel pricing right, it will never fully realize the value of its offering.
Channel pricing establishes the amount of compensation that independent distribution partners earn on the sale of products or services. It pays for the activities that third parties perform on the supplier’s behalf. It establishes whether distributors, retailers, resellers, or other channels will focus on a supplier’s brand or, conversely, seek alternatives. It drives the channel’s behavior to take costs out of the supply chain or invest in activities that generate demand. Most manufacturers think of channel pricing as little more than volume discounts or growth incentives. While these programs may play a role, in today’s complex environment, suppliers must utilize channel pricing to pay for functions performed, motivate behavior, manage conflict, and take costs out of the supply chain.
Achieve an increase in marketing opportunities and the spread of the product
The price of product is very much depend on the distribution strategies. The matter is how the product reaches the end user and where through the product travel from your go-down. Where the channel centers are strong enough to cater the storage and distribution from your side as in case of general utility and bulk commodities the cost impact is very much limited where it is a customized approach the price upload is some what on a higher side. The mode of transport or courier will also have an impact as also the safety aspects and value per unit of a product.
