Getting Multi-Channel Distribution Right

CHAPTER 14Harnessing the Power of Price and Price Promotions

14.1 INTRODUCTION

With a few exceptions, suppliers distributing through independent middlemen don't set the retail price to be paid by the end consumer. However, suppliers do influence middlemen's selling prices with their own actions, such as the prices and incentives they offer to channel partners (and there are many others). The influence process is often messy, and dissatisfaction with pricing is central to all four root causes of conflict we laid out in Chapter 3: (1) The myopic tendency of each party to maximize only its own profit can result in retail prices that are too high for the good of the whole channel; (2) over-distribution puts pressure on retailers to price too low, and this tendency is exacerbated for brands with strongest consumer search loyalty;¹ (3) the division of pay between suppliers and channel members depends in large part on the price and promotion levels each party sets; and (4) at least some of the angst about the future is about the ability to charge a price that sustains the functions needed in the face of new, especially online, distribution channels.

Channel incentives don't substitute for making the right decisions with respect to the breadth and type of distribution, or even for offering a competitive product line, which is why we discussed those issues before getting to this topic. But once those decisions are made, smart pricing, promotions, and other incentive programs can oil ...