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Channel Matters Blog > June 2015 > Channel Discounting - Can't We Do Something About It?

Channel Discounting - Can't We Do Something About It?

by Rich Blakeman
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I was talking to a client recently, and he had a request we hear quite a bit:

"Rich, I have a terrible problem. As you know, we sell through multiple channels, and one of them is routinely undercutting our street price by discounting. Can you help us design some pricing strategies that will keep that from happening?"

Sound familiar? If you sell through indirect channels, I'll bet it does. Before we get into the resolution, here's a little more background to help you identify with the client's challenge.

The product could be anything, but in this case, the company sells supply products through a number of channels, including retail. The fact that retail is involved isn't the cause of the challenge, but it certainly exacerbates it.

They also have a direct sales force, and that was the crux of the real concern. While no company wants their street price driven down by discounting, the pain was even more pronounced because it was affecting the direct sales force's ability to make their numbers. (And fully leverage their comp plan.)

But you're not Apple
You'll notice in the way the client asked the question that he already had a resolution in mind. He thought he could fix his problem through pricing strategy. After all, major companies like Apple Computer manage to control their street price pretty well. Why couldn't he?

I had to break it to him. You're not Apple. And, I'm guessing most of you who have this same issue aren't either.

Major companies control their street price through a number of strategies such as limited channels, exclusive agreements and pricing strategies that prohibit discounting. Because they are the 800-pound gorillas in their markets, they are able to do this without limiting market share. In fact, for some of them, charging top dollar enhances their brand and the value of the partnership.

On the other hand, most of us are fighting a never-ending battle to differentiate our offerings against competitors that our customers perceive to be viable substitutes. We simply don't have the kind of market clout we need to control street price through pricing strategy. So what can be done?

Which side are you on?
This particular client had another challenge that, at first, may seem unrelated. I assure you, it's not. He thinks of his partners as customers. That's what he called them during our extended discussion.

So what's wrong with that? It boils down to the difference between selling to someone and selling through someone. Until I raised the possibility, it never occurred to the client that his channel managers needed to sit down and have a business discussion with the channel about their mutual problem. (The discounting affected the channel partners' bottom line, too, whether they liked to admit it or not.)

Make no mistake. A business discussion does not mean announcing the new pricing strategy to your channel. It's about asking questions like:
— How does your organization make money?
— What pressures are causing you to discount?
— Have you tried selling at retail? What happened?
— Do you discount more or less for these products than for other products you sell? Why?
— Who is the competition, and what are they charging?
— Is there a value that customers are getting from the competition that allows them to charge more?
— Is there a value-add that you offer that the competition does not? What do you think that's worth to the customer?
— Is there value that we could add, either together or separately, that would allow us to charge more without loss of volume? How would that affect your business model?

Your channel managers won't ask all of these questions in every channel conversation. On the other hand, they'll probably ask several more that aren't on the list as the discussion progresses.

As always, channel managers need to check their ego at the door. This is not the place to look for "gotchas" - opportunities to show the partner they are wrong. Instead, the channel manager is looking for information that will help them better understand the partner's business model so they can influence the partner's choices and behaviors – not dictate them.

At Channel Enablers, we call this skill Channel Business Acumen, and it's vital for your channel managers to develop. It's what allows the channel manager to bring the partner over to their side of the table so, together, you can find a win/win solution to a mutual concern.  After all, that's what it means to be a "partner."
Last modified on 6/12/2015 4:38:25 PM
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