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Is Help on the Way for Consistent Channel Pricing?
A new Aberdeen Group survey shows that organizations are slow to adopt channel price-management strategies.
Posted Nov 12, 2004
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Competition between enterprises is simply part of doing business, but when the competition comes from within, it can hurt more than the bottom line. Channel price-management strategies seek to bring the entire sales cycle into harmony with an established set of profit-maximizing prices, rather than allowing channel partners and even regional or divisional corporate siblings from bidding down each others' business. These situations are exacerbated when companies choose to put the greatest emphasis on answering demand--expanding the breadth and depth of channels, which can lead to increased internal competition--rather than managing prices. Unlike cost-cutting efforts, the use of price management is actually indicated to defend against narrowing margins during times of growing demand--in effect, to help build profits as well as revenues. In a new report, Price Optimization in the Sell-Side Channel, Aberdeen Group describes some of the difficulties companies have faced in adopting channel price management. Aberdeen and CRM magazine surveyed more than 150 business executives in 21 industries. Despite the promise of higher profits, more than one third of these execs were unwilling to invest in channel pricing management at all, and more than half of the respondents said they would commit less than $100,000 to such an effort. Only 22 percent presently have any channel pricing-management systems in place, meaning that most companies still put the majority of their pricing science into price books that may not even be part of the negotiating process. "It is common for companies to invest in price management at the product/brand level and to spend a great deal of time, energy, and money managing a 'list' price that customers seldom even see, and which few (if any) actually pay," writes report report author Chris Selland, Aberdeen Group vice president of sell-side research. Although a growing number of software vendors claim to offer pricing management, the imbalance between what corporate clients are asking for and what they deploy is striking. Among those companies deploying channel price management, more than three quarters used a system developed internally or as a custom programming project, according to the survey. Yet three quarters of all respondents also said that they would prefer to obtain such capabilities either as packaged enterprise software or as an on-demand service, not as a custom project.
"Those solution providers that can demonstrate the ability to help their clients simultaneously manage channel scale, revenue growth, and pricing and margins have a tremendous opportunity to deliver business value," writes Selland, "and [a] willing (albeit cautious) base of buyers who will invest if that value is demonstrated and delivered." Related articles: A Bull's Eye for ON Semiconductor's Pricing Execution Market Watch: Many Possibilities, One Price
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