Pricing
Strategy
Selling Through Distribution Channels
Subject:
Sales, Distribution, OEM, VAR, Integrators, Discount levels, Inventory,
Selling, Decision Making
When
I was running a sales force, one of the problems I
came across frequently is that of trying to establish pricing for
different types of sales channels. In a manufacturing business for
example you can have several distribution categories:
-
Distributor:
A company who resells your equipment.
-
Restocking
Distributor: Is a company who not only resells your equipment, but
also keeps a stock. This is an advantage especially if product
delivery or lead times are important.
-
VAR: Value
Added Reseller who takes your product and enhances its value by
incorporating it into a larger system sale.
-
Integrators:
This is a company who not only buys from you, but also from other
manufacturers and then bids, and hopefully wins, large system sales.
An integrator in most cases will install the end-to-end solution for a
company.
-
OEM: Other
Equipment Manufacturer is a company that buys your equipment and
re-labels it under their own brand name.
Note:
All five are considered “distribution channels”
As you can see, each
type of business brings a certain value to your company. The question
is how to determine pricing to each these groups. Do you give:
a)
Them all the same level of discount?
b)
The discount levels based on years of
service?
c)
Them based on annual sales?
d)
A better discount if they restock?
e)
A better discount if they integrate or OEM
your product?
 These are some of the
tough questions a sales manager or company head would have to answer.
Another thing that
you need to keep in mind is that these entities talk to each other and
will eventually find out what others are getting in terms of discounts.
This will definitely be an issue when competing distribution channels go
after the same bid. So you have to be very careful how you set your
discount pricing strategy.
Here’s an outline of
a strategy I employed:
Level 1 -
Distributors: 20%
Level 2 - Stocking
Distributors, VARs and Integrators: 25%
Level 3 - OEM: 30%
Level 4 - Any Channel
Selling over $500K: 35%
You’ll note that for
Level 2 I increased the discount level based on the company’s ability to
add value to a sale. Each one of the 3 entities in Level 2 adds that
value by either being able to delivery quickly from products out of
their stock or by offering installation services.
The importance of
defining these levels is critical in managing distribution channels.
Again, word will get out and competitors will find out what others are
getting. You need to put yourself in a position where 1) you can defend
the discounts levels and 2) show that you value “added value” in your
discount structure.
By establishing a
level playing field for all distribution channels to compete, you then
avoid any criticism in the long-run of playing favoritism to any one
company.
Final notes: Never
give an unknown customer who decides to buy direct from your company a
better discount than you do your distributors. Nothing will drive off
distributors faster then knowing they aren’t getting a fair deal (i.e.,
getting undercut) from the manufacturer.
Hope this was helpful!
Victor Antonio
is a Sales Trainer and
Motivational Speaker with 20 years of industry experience in
the market. He has a BS in Electrical
Engineering and an MBA.
Copyright © 2005 by Victor Antonio All rights reserved. This article MAY
be reproduced in any form or by any means, electronic or mechanical,
including photocopying, as long as the author’s name, website and email
address are included as part of the article’s body. All inquiries,
including information on electronic licensing, should be directed to Victor Antonio.
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