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Early Pricing Conflict Warning Signs
In our previous blog post, we discussed three common underlying causes of pricing conundrums along the customer chain—market pressures, flawed channel design, and poor channel management. In this post, we will look at several leading indicators and actions that can be taken before price conflict and pricing conundrums occur.
Pricing conundrums can paint a bleak picture for suppliers and their channel partners. However, companies don’t set out to mismanage their channels and harm their sales. Rather, they become victims of market pressures, market changes, and customer chain issues that creep up over time. However, there is a way to take action before pricing conflict turns into a pricing conundrum.
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Early Pricing Conflict Warning Signs
In our experience, there are four early pricing conflict warning signs that B2B companies should be vigilant about:
1.) New entrants
The primary way new competitors enter a market is by offering a similar product at a lower price. This can be accomplished through the introduction of a private label brand or by offering a “good enough, no frills” product at a deeply discounted price. For suppliers in these situations, the optimal strategy is to have differentiation in terms of your product’s performance, service and delivery, total cost of ownership, or relationships. However, if you find yourself in this situation, proactively defend your position by nurturing your customer relationships and ensuring that your customers receive high, value-added services that justify higher prices. Consider if there are opportunities to develop product extensions or improvements that will allow the customer to receive enhanced benefits by purchasing a better or best in market product.
2.) Alternative Channels
Alternate channels come in many forms: e-commerce, in-line competition, and channel partners from a near-by industry. If your end customers are in a position to buy from alternative channels, you need to make sure that your company has a very clear value proposition that differentiates your offering from the alternative channel whether it be by service, relationships or preferably both. Also, ensure that your channel partners stay vigilant in their ability to provide value-added service and support.
During the Great Recession, many B2B companies witnessed an onslaught of consolidation occurring within channels and along the customer chain. This can either be a source of pricing conflict or the means for solving the vicious cycle of pricing, depending on where and why consolidation is occurring. Consolidation can sometimes unwittingly create price pressures, such as when weaker competitors that competed on lower prices are consolidated, leaving the remaining players to have to contend with their end customers who expect lower prices.
Manufacturer consolidation, however, also can put pressure on players downstream in the customer chain. This typically happens when companies with similar products merge, creating issues of intensity, overlapping products and brand, and customer focus and territory authorizations. All of these issues should be addressed in collaboration with the channel to ensure that complementary distribution can coexist.
In these situations, it is better to be the consolidator or the seller. The key is to be attentive to these patterns, anticipate the ramifications, and position your offer to best take advantage of the consolidation in your industry.
4.) Converging Roles
Converging roles can involve:
- Forward or backward integration of roles and responsibilities where one channel partner cooperates or merges with a different customer chain player to provide a comprehensive offer
- Shifting between customer chain players where roles that were previously performed by distinct customer chain players are now being performed by a different player
When either of the above two situations occur, the pricing structures that were originally established to reward value-added activities are often misaligned. As roles converge, shift, or integrate, pricing must stay current. Suppliers must adjust pricing policies and structures when there are significant shifts in their customer chains or the roles performed by their channel partners. Utilize technology and innovative approaches to help you and your business partners solve customers’ challenges. At the very least, stay abreast of changes in your customer chains and keep your customers’ problems in your sights.
When there are complex customer chains with many steps between the manufacturer and end customer, or there are multiple pathways through alternate channels to the end user, price management is difficult. For manufacturers, there are means to influence the channel, particularly if the brand position is strong or the channel design has been more selective as opposed to intensive or open. Changes that impact the customer chain and corresponding distribution channels are often a cause for price disruptions.
Learn more about this topic with industry examples: