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Channel Analysis

Companies that use resellers do not have complete control over their prices. A company that uses resellers has limited control over the prices the resellers charge to their customers. A channel analysis will help identify the current practices of the sales force, wholesalers and retailers with an eye toward finding out why they are acting the way they do and identifying actions that might improve their performance.

One key to effective channel management is to understand the objectives of resellers and how your products help them achieve their objectives. The reseller may have multiple reasons for carrying a product beyond simply the profit that its resale can generate. It's helpful to understand the role of your company's products in the resellers portfolio, whether it be as a profit center, a traffic driver, or products that help to enhance the reseller's reputation or strategic position.

It is also helpful to understand the process by which a reseller sets prices. Some resellers employ simple markup rules based on product category norms. Others may target prices to those charged by a close competitor. Many resellers are becoming more sophisticated and are using price management software that is designed to help them measure how a product's unit sales vary with price and optimize accordingly. When setting wholesale prices you should account for the reseller's pricing rules as well as a price sensitivity of its target customers and optimize accordingly.

A channel analysis will help you understand the motivations of your resellers and how they influence how your products are priced and how much sales and promotional effort they will put into selling them. These insights will be used to develop a wholesale pricing and discount policy that will be effective in achieving your profit objectives. It will also identify the types of incentives that resellers will pass through to their customers and encourage them to support the products and price them for profitable sale.

It will also account for how the distribution policy impacts competition on the manufacturer or supplier level. Distribution decisions will have a substantial impact on how sales will vary with price. For example, an intense distribution strategy may lead to me lead to excessive price competition among resellers. Intense price competition at the reseller level for a given brand me lead to such small margins that resellers will find it in their interest to lure customers in using the intensely distributed product and encourage customers to purchase an alternative that will provide them with higher margins. The potential for bait and switch tactics can be especially damaging in product categories where resellers can have a substantial impact on a customer's purchase decision. A channel analysis will help you identify potential sources of channel conflict and manage them effectively.

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