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Feb 18, 2005 5:12 am |
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re: Price Dilution problem - need advice |
Nilesh Joshi
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Hi Ron,
The broad pricing policy can be A) Skimming (make huge profits based on the nicheness of the product or its innovativeness, etc). In this case, you need to have total control over your distribution channels to ensure that the premium tag is not diluted due to price undercutting. However, at some stage in product life cycle, you need to change this strategy and deploy the
B) Penetration strategy, wherein you target wider customer base but loose control over the end Price, Discounts, Partner margins, etc.
I have seen that in some cases, prodcuts are sold by channel partners at No Profit, due to their bundling strategy (bundle it with another product and make money on that product) or to retain the customer or to break into competetion customer, etc.
Hence, in my opinion, if your product is still in phase where, you can command premium and are not looking at higher Volume, you can cut-off supplies to your partner.
However, if you are looking at volumes, you need to accept such price dilution.
All the best.
Nilesh
> Ron Sam wrote: > Concern over Price Dilution - > >We are exclusive distributors for a manufacturer of a unique safety product for buildings. We sell to wholesalers primarily. Recently, a guy wants to buy 500 units and market them to his customers of a related business. > >We give him the same discount as to wholesalers. He marks them up slightly and sells them in 10 unit lots. His SP is $100 less that our 10 unit lot price. > >We can only control this by cutting off the supply to him. > >An alternative that might allow a sub-distributor, is to conform to our price structure and give him a finders fee. No contracts will be set. > >I believe it will cause a permanent negative image of our company and my partner thinks it is good for business to get this new product out into the market faster. > >Does anyone have advice on methods for prevention of Price Dilution? > >Ron Private Reply to Nilesh Joshi (new win) |
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