Brian Beck on Pricing Strategies to Manage Channel Conflict in B2B Commerce
This post is an excerpt from Brian Beck's Billion Dollar B2B Ecommerce: Seize the Opportunity, available now
Channel conflict is largely centered on product price
When a manufacturer or brand sells directly to the end user of the product, they always have more overall margin to work with. Manufacturers have the ability to sell products at a lower price, as they can now capture the “retail” profit margin on the product.
The power to disintermediate is the central underlying factor that defines channel conflict, and must be managed by manufacturers and distributors alike to avoid alienating traditional reseller channels.
Resellers are often responsible for a very large percentage of a manufacturer’s revenues, and this must be respected. In addition, many resellers add real value to the end customer -- thus a balanced approach is necessary.
5 key questions to ask regarding your pricing approach
- What “retail” or resale price (the price paid by the ultimate user of your products) has the market supported over the past two to three years for your products through each resale channel?
- What are the pricing trends in each resale channel?
- Based on pricing history and trends, how much overall margin do you have to work with--your cost versus the ultimate resale price?
- How does each sales channel price your products? And do they typically offer discounts on your (or their) list pricing? Do they use promotions or similar tools via Ecommerce/direct channels? If you sell thousands of products, you might approach this at a category level instead of product level to make data analysis more manageable.
- How is the price to the end customer typically determined and managed? E.g. Are there contractual, private pricing relationships that are negotiated, or is the product bought at a published resale price, such as an MSRP from a website or catalog?
5 tactics to apply to direct-to-buyer pricing
Your pricing approach for direct selling efforts via Ecommerce can include the following tactics:
Set a clear Manufacturer’s Minimum Advertised Price (MAP) and enforce it. This is a channel-agnostic and well-documented policy that informs all channels what you regard as the pricing that is acceptable to present publicly. Note that MAP policies can be difficult to enforce legally, and need to be deployed in a channel-agnostic manner, but they are clear lines in the sand that help manufacturers and brands manage selling channels. Of course, you should honor your own MAP policy on your Ecommerce site, at least for any public-facing pricing.
Set public-facing pricing i.e. the pricing that anyone looking at your web site sees--to a level that is reflective of your other channels’ web site pricing. One of my clients does this so that no matter where current or prospective customers look on the Internet, they see the same pricing, so the buyer determines who to purchase from based on other factors, such as service, ease of purchase, and delivery time.
Consider leveraging Ecommerce functionalities to offer special pricing to specific customers (or groups of customers), only displayed behind a web site login (in essence, a private web site). For example, you can use digital tools to show MSRP pricing on the public-facing web site, but once a customer logs into their wholesale account, they are presented with customer-specific pricing levels, perhaps reflective of contracted discounts.
Moreover, if you have different customer segments using the same web site, Ecommerce tools allow you to expose price selectively based on the customer login and account type. In other words, one segment gets to see one price, while a different, unrelated segment is presented with a different price. Some B2B Ecommerce sellers I work with don’t even display pricing online until a customer logs in. The point is that there are a variety of ways to use tools to manage pricing visibility on your web site.
Consider assortment variation as another tactic that can be very effective in managing channel conflict. You might repurpose an existing product line with a different brand name or feature set, or even create a new product line just for direct selling. For example, I work with a well-established manufacturer of a wide variety of garden and home decor products. The company generates over $350 million in revenue per year, and sells its products to numerous major retailers as well as distributors. They recently started selling directly to consumers under a separate brand, but leveraging the same great products. This portion of their business, which is entirely Ecommerce and marketplace driven, has quickly grown to over $20 million in revenue, and continues to grow by 50 percent per year.
Don’t forget other tools, such as free shipping that you can use to influence the sale without impacting the price that is displayed or publicly accessible to your channels. Whatever your approach, you must understand and track pricing by channel on an ongoing basis.
A good plan will recognize and anticipate potential channel conflicts around price and address price fluctuations as you go to market. As you execute an Ecommerce strategy, you may find opportunities to be more aggressive within some customer segments or geographies, particularly in new market segments that are not addressed effectively by your traditional resellers.
The bottom line is that you need to know where and when you can be aggressive, and where and when you can’t.
Elastic Path is proud to sponsor Brian Beck’s Free Virtual Book Tour series featuring a breakdown of key concepts from the book along with real-world success stories from eCommerce leaders at Johnstone Supply, Illumina, Pella, Cardinal Health, and more. Register today.
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