Tip: Optimize Pricing to Combat New Rebate Reality - Modern Distribution Management

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Tip: Optimize Pricing to Combat New Rebate Reality

New pricing structure can help you remain profitable in absence of rebates.

The changing market has redefined rebates within distribution, but by optimizing your pricing structure you can adapt to the new landscape and remain profitable, according to Michael Workman, president of Michael E. Workman Associates Ltd., in MDM's Webcast: Moving Beyond Rebates for Revenue.

Rebates have long played a critical role for distributors, many of whom rely on the returns they get from these incentives to remain profitable. But the traditional model may be reducing a distributor’s ability to respond to market conditions, even as they remain focused on responding to customer demands.

“The process of incentives to buy have continued to grow and be a common motivator for both parties within the channel,” Workman says. “I think that’s probably evolved to the point where it’s almost unworkable in many channels, and both manufacturers and some distributors are looking for ways to be more effective in their growth together.”

Workman cites inconsistencies in pricing as a cause of reduced profitability in distribution. "We find so many differences in pricing to the customer at the branch level, at the personal level, and we find more and more and more that those inconsistencies are nearly always a cost driver for distributors,” said Workman.

The market is evolving, and as a result, programs centered on buying more from manufacturers may have run their course. Defining a replacement incentive structure, however, can be complex.

"I'm not asking you to fix prices with your manufacturers…I'm smarter than that," Workman says. "I'm asking you to understand pricing within your organization to make sure that you and all your players are on the same page in order to make sure that you optimize the pricing opportunities for you within your channel."

Learn more about redefining rebates in MDM's Webcast: Moving Beyond Rebates for Revenue.

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