- Channel programs manage partner discounts, while partners determine customer pricing
- Partners often seek additional discounts to compete for and win deals on behalf of the supplier
- Understanding the drivers behind channel special pricing requests is important to minimizing the need for them
Suppliers spend a lot of time and resources on building channel programs and discount schedules to manage partner margins and pricing. A pain point for many, however, remains the high volume of partner sales opportunities requiring some level of price exception, terms or special bundling. So, what’s going on? Suppliers often assume that special bids are driven by partners that are taking the path of least resistance by leading with price and not selling value. Or, they perceive the channel as trying to gain additional margin for their own business at the expense of the supplier. The reality is that more complex issues are driving this behavior. Here are three key drivers that affect partner pricing efforts and what a supplier can do about them:
- Competitive pricing. Any discussion on channel pricing needs to start with understanding whether the supplier’s product pricing strategy is in sync with the customer environment. New competitive threats, including pricing maneuvers or product introductions, may affect the position of the supplier’s product in the market. Validating and reacting to these dynamics with price adjustments takes time, however, and requires internal operational changes across the business – as quoting, ordering, and other tools and processes must be updated. A special bid can solve for the current sales opportunity, but the issue will continue unless the pricing is fixed. If misalignment is evident between pricing strategy and pricing reality, the channel teams need to engage the product team quickly. The product team may be able to provide short-term solutions, such as product sales promotions, to bridge the gap until the pricing issue can be resolved.
- Right product, right price, wrong market. A channel sales behavior that can turn good pricing bad is selling the product into the wrong market segment. For example, a partner might be trying to sell an enterprise solution to a mid-market customer, or a product into a vertical market that is not targeted (e.g. selling an offering targeted for healthcare into education). While the product may work in both scenarios, the pricing strategy may not. First, address whether the channel is receiving effective training and sales enablement on the offering itself – this should help them understand the target markets, as well as provide them with the tools to sell into them. Next, investigate whether there is misalignment between the supplier’s go-to-market strategy and the partners tasked with executing it. If the supplier and partners are not in sync, the channel team may need to recruit new partners who can better serve these target markets.
- Customer budget constraints. We’ve covered the supplier’s pricing strategy and the partners’ sales behaviors, but what about the customer? Some target customers may be limited by budget availability. In a competitive bid, the supplier provides the partner with additional discounts to meet or beat a competing product’s price, making a price exception to fit into the existing budget scope. Looking into other options, such as special financing or a cloud vs. on-premise offering, may be enough to accommodate the customer. If not, the supplier and partner must work together to decide if the opportunity is worth pursuing. Sometimes there is great value in helping expand coverage within an existing account or market. Other times, it may make more sense for all parties to walk away because no one has the potential to make money on the deal.
Channel special bids are a great way for suppliers to respond to the competition and changing market needs. If the pricing strategy, partners and target markets are aligned, the need for special bids should be minimized, but if they remain the norm, the supplier should investigate the price exception process itself. Are the thresholds for deals to be considered clearly defined? Is the partner required to demonstrate a real customer opportunity with a real pricing need that must be addressed? While this should not become a “sales prevention” exercise, building discipline into the process helps the supplier and the partner optimize their margins while growing the business together.