Love Them Or Hate Them, Special Pricing Programs Aren't Going Away

Special pricing, of course, refers to the practice by which solution providers obtain additional discounts through distribution from manufacturers when they are involved in competitive bids.

As it stands right now, the only consistent winner in this game is the end user. Manufacturers lose margin, distributors often incur greater costs, and solution providers waste time chasing price changes that clearly do not put more money in their pockets. Without special pricing, however, the business would be lost to either a direct manufacturer or someone else willing to play the game. So let's face it, eliminating these programs is not an option. But they can be better-managed.

\

ROBERT FALETRA

Can be reached at (516) 562-7812 or via e-mail at [email protected].

The reality of the situation is that a huge percentage of products sourced from distribution end up in large enterprise accounts. Estimates range in the 40 percent to 50 percent range, depending on the manufacturer, the product involved, etc.

In the case of the enterprise, pricing pressures will never go away. Not only will we never eliminate special pricing in these accounts, but a higher percentage of these bids also will entail special requirements not necessarily confined to price alone. By that I mean they often include special configurations, unique warranties, asset management, software loads or other demands on the part of the customer looking for a solution.

id
unit-1659132512259
type
Sponsored post

What we need is a fix of the process everyone goes through in order to make things work as best as possible.

Let's remember that there are all sorts of variables in play. If, for instance, the special pricing involves products which, for whatever reason, are not in inventory at the distributor, then the practice is generally less problematic. In that case, the price is adjusted, and the product is shipped from the manufacturer.

'As it stands right now, the only consistent winner in the pricing game is the end user. Manufacturers lose margin, distributors often incur greater costs, and solution providers waste time chasing price changes that clearly do not put more money in their pockets.'

When the product is in a distributor's inventory, however, and the price change requires a rebate from the manufacturer, there are additional costs that arise, and the distributor needs to expend real effort to make sure it gets the rebate. Understandably, distributors must be sure they get reimbursed or the thin margin they receive will quickly turn to a loss. That process has to be made as efficient as possible. If distributors have to dedicate resources to manage and chase all this, nobody will or should be happy.

In the small-business space, there are other ways to address this issue. One proposed method would be to select and agree on certain system configurations that carry an absolute rock-bottom price that cannot be adjusted. This approach could work well in that portion of the market that is price-conscious but not looking to drive out every dollar. The price has to be very competitive in this scenario, requiring manufacturers to give up some margin. As we all know, however, they are going to be looking for market-share gains in exchange.

There may be other ways to address the dilemma. For instance, a distributor could be given some leeway to adjust price on its own when a competitive bid is in play, and then get reimbursed later by the manufacturer. Or vendors could allocate a certain amount of cash to a distributor to use in these bidding situations. One problem in all this is that everyone needs to be sure that these programs are not creating situations where a manufacturer is actually bidding against itself through two solution providers using different distributors.

It seems to me that ultimately it is going to be those in the trenches at the distributors that will have to sort this one out. But the bottom line is that these programs are necessary if a manufacturer wants to remain competitive.

Make something happen. I can be reached at (516) 562-7812 or via e-mail at [email protected].