I’m ready to put some big data vendors on notice. I don’t care how well your software prices consumer goods and internet transactions, it does a lousy job of trying to set wholesale distribution prices.
Spare me your statistical arguments. I’m familiar with scatter-plots, statistical distributions, and the principles of audience segmentation. I’ll concede that we are, indeed, shipping two identical cases of product to a similar sized business operating in a similar industrial classification.
The fundamental problem is it is completely acceptable to sell those two cases at different prices. The two distributors are likely not performing the same work. Understanding these service differences and rewarding them appropriately is the key value of a properly managed wholesale pricing desk.
Wholesale distributors create value at three levels:
- Pioneering – generating fresh interest in your product
- Broader Reach – reach customers you cannot serve through other means
- Representation – sustaining relationships on existing demand
Wholesalers and their sales representatives aren’t ignorant. They are well aware of the time and cost required to deliver on each of these commitments. Unfortunately, only two of these actions create value for the brand.
The pioneering distributor, who brings a product or program into new accounts, is a critical asset in driving B2B channel sales growth. They are the engine of growth and new placement in the channel. However, this often requires significant investment in selling time and customer setup, at their own expense until the orders start to materialize. They will (rightfully) ask compensation for this effort.
Along the same lines, distributors with unique access to a particular audience can be a tremendous asset in expanding your reach. This may take the form of servicing high cost audiences such as small accounts and remote customers, which increases a distributors’s logistics expense. They will also need to be fairly compensated if you’re going to expect them to support your products.
Which leaves us with the appropriately vague concept of “representation”. Frequently implemented as a distributor rolling the existing demand generated by another wholesaler or a brand’s own marketing into their order book and charging you a rent on the business. From a pricing perspective, we will generally want to avoid doing any special favors for this audience since it only hurts our productive distributors.
If you’re going to use statistical pricing guidance for wholesale distributors, you need to work with your sales team to understand the nuances of the channel before you start crunching numbers. Remember distributors are rational profit-seeking business people – they’re not going to support products where they’re not going to earn a fair return on their time.
Case in point, it may actually be reasonable to give a hotter price to a pioneering distributor who is servicing a remote market than to a larger but more generic distributor in your home market…