Distributor Pricing

Building an effective distributor pricing strategy goes deeper than setting pricing policy and gross margin targets. You need to carefully consider how you intend to create customer value – and claim it in the market place.

A good distributor pricing strategy starts with a clear vision of what you bring to the game as a wholesaler. Approach this as a competitive pricing strategy exercise, looking beyond your distribution channel to consider customer alternatives. Look at competitors from an adjacent sales channel, manufacturers going direct, and the customer‘s own production cost (if they can make the product in house). Want to increase your profit margin? Ask how you can create more customer value in the process.

From there, we look at pricing optimization and your pricing model. This include list price, discounts policy, terms of sale, supply chain services, and credit. There are two goals to this exercise. First, understand where value is leaking from your business. Second, assess where you want to be on the customer demand curve.

If you are selling a product to a retailer, you need to consider retail price point in this exercise. The retail selling price will dictate how much margin is available for wholesale pricing – and if the margin is enough to cover supply chain costs. This is especially true for any new product, where you’re estimating the potential selling price and retail customer demand. Retail pricing also affects your total sales volume, which is required to properly size your production cost.

Finally, you need to look at how to set and enforce pricing policy with your sales force. Pricing isn’t effective unless a sales rep can execute the program.

For help putting together a plan to address these issues, reach out to us for a pricing consultation. Otherwise, check out the articles below for perspective on these issues.