Cuting Off Your Supply Chain to Control Pricing
It is a fact, mispricing of your products by retailers can do serious damage to your brand. Building a reputation as a high-quality, premium brand is a slow process, but destroying that same reputation is an extremely quick one. As discussed in previous articles, many manufacturers have seen their brand degraded, perhaps irreparably, by retailer price wars. It shouldn’t be a surprise, then, that some manufacturers have opted out entirely. One of the advantages of the online economy is that you can make direct contact with end users much more easily. The fewer steps that there are in your supply chain, the more control that you can exert over the final retail price of your products. It can even help to reduce the impact of counterfeiting. If customers know that they can only buy your product through your website or your brick-and-mortar stores, they are less likely to trust heavily discounted online retailers. However, cutting your distributors off is a nuclear option. While some manufacturers have done it successfully, it can have huge and damaging repercussions for your business. There are good reasons why most manufacturers don’t go it alone.
Keep Market VisibilityIf control over your products prices and presentation is your top priority, then it can indeed make sense to stop working with third-party distributors and deal with your end users directly. In the age of online selling, some companies have taken that approach successfully. But for most companies, there are good reasons to continue wholesaling. Chief among these is customer exposure. If your product can be found on the shelves at Macy’s or Walmart, millions of people will see it each week. Achieving that kind of exposure as a direct-to-consumer business takes an incredible amount of marketing effort and resources. Even companies that have adopted the model successfully, like Everlane, just don’t have the same reach. And if your product does vanish from store shelves, only some of your customers will seek it out elsewhere. Most will just shrug and buy an alternative.
In Defense of DistributorsDistributors also carry out valuable marketing and market research activity: after all, their income relies on their ability to sell your products. By cutting them off, you are forced to either make up the difference or accept that your products will be less marketed. Working with distributors also makes logistics simpler. It is easier and more efficient of to keep track of and deliver a few large orders than a lot of smaller ones, and then let your distributors do what they are good at and get your product into retail stores. They have the expertise to deal with distribution issues, allowing you to focus on innovation and product quality. Working with distributors might take away some of your control over pricing, but the benefits are clear.
Non-Nuclear OptionsLuckily, there are ways to exert control over your products final prices without cutting off your supply chain. Enforcing a MAP policy allows you to set an effective price floor for your products, preventing retailers from fighting an unrestricted price war. While it doesn’t give you total control over your products price, it does ensure that your brand is not cheapened by overly aggressive pricing by retailers. Enforcing a minimum price also encourages retailers to take value-adding measures instead of cutting prices in order to compete, helping to solidify your product’s premium brand positioning. Ensuring that your MAP is effective requires constant vigilance, but it allows you to enjoy the benefits of working with distributors without inviting unrestricted price competition.back to blog