GUIDELINES FOR DEVELOPING EFFECTIVE CHANNEL PRICING

STRATEGIES

ByGroup 2

Marketing LMN

AGENDA

• This part of the chapter sheds light on the different pricing issues on channel management and guidelines for developing effective channel strategies.• In this chapter Oxenfeldt offers a set of 8 classic guidelines for

developing pricing strategies that incorporates channel considerations.• The 8 guidelines are discussed in brief in the following slides.

1. Profit Margins

• Channel members expect a handsome margins to cover the costs associated with handling particular products.• Manufacturers must take utmost care to fulfil the expectation of

channel members and not make them feel that they are being dictated terms.• Proper actions will keep in check that the members do not seek other

suppliers or establish their own private brand.• For the same, the Channel Manager should continuously review

channel member margin structures to determine the adequacy.

2. Different Classes of Resellers

• Major point of periodically reviewing channel member service in relation to margin is to find out if they are any major inequities that are creating problem in the rank of particular classes of channel member.• Ideally margins are set by Channel Managers so that they would vary

in direct proportion to functions performed by different classes of channel members.• In reality margins are set in accordance with the guidelines by the

manufacturer.

2. Different Classes of Resellers (Contd.)

• At wholesale and retail levels, margins are set governed by strong traditions that permeate the industry• Periodic review of the margin structure available to different class of

channel members should be made.

3. Rival Brands

• Differential margins for channel members who carry competitive brands should be within tolerable limits.

• For a manufacturer who has well established products, like SONY, the dependence is on heavy advertising and sales promotions to push sales.

• At the retail level promotion by the retailers are not dependent much on advertising or sales promotion as SONY has its own brand image. Low margins are granted to retailers.

• Smaller specialized manufacturers have selected and aggressive retailers who can draw customers through strong local advertising and personal selling. Manufacturers have to offer larger margins to cover retailers’ cost of aggressive selling

• Channel managers have to weigh any margin differentials between their own brand and competitive brands to see what support the firm offers and what they expect from the channel members

4. Special Pricing Deals

• Offered by manufacturer to channel members in the forms of:• Higher discounts• Rebates• Free goods• Enhanced quantity discount etc.• Offered by manufacturer to channel members in the forms of:

• The Purpose behind?• To stimulate sales of the manufacture’s sales during period of special price

prmotion

What could be the implication?

• Channel pricing problems• As channel members expect discounts all the time

• Undermine brand equity• As products reach the customers at cheap prices

• Example: Dieageo PLC’s Morgan Parrot Rum

5. Conventional Norms in Margins

This has been explained taking the example of GoodYear Tires. They increased the price and conveyed that it was necessary to discourage large distributors to form

undercutting its sales to small distributors.

• Oxenfeldt identifies that the channel members mentally classify the margins they get as NORMAL, FAIR and PROPER.• This makes it difficult for the manufacturer to deviate from the

conventional margin structures.• The deviations must be justified in the minds of channel members,

conveying the rationale behind the migration.

6. Margin variation on Models

• Variation in margin on a particular model is common• Manufacturers focus on products that increase footsteps in stores• These products are also considered as promotional products• Channel members show less enthusiasm to promote products below

the norm• Channel Members should attempt using low-margin products for

promotions whenever possible

7. Price Points

• The price at which consumers expect to purchase products.• Different from low unit value to very high unit value.• Inflation increases price of some products while technological

advancements decreases the price of some products.• A channel manager should be aware of the price points for the

products to offer a competitive price.

8. Products Variations

• Differences in product features leads to price differences in the products.• Price differences should be in-line with the visible or identified

product features.• Eg.: Toothpaste brand Colgate charges different prices for different

variants of toothpaste based on product differences.

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