How To Build Effective Channel Compensation Systems

Sometimes, suppliers get caught up in thinking that channel compensation consists solely of their back end rebate programs and market development funds (MDF). These programs have a high level of visibility since they show up clearly as line items on the supplier’s income statement. To really understand a channel's overall compensation, a supplier needs to consider the front end margin that the channel earns in addition to the back end programs.
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 Putting it All Together: Use Modeling Tools and Pricing Research to Make Effective Channel Pricing Decisions in the Building Products Value Chain

Pricing in the construction industry continues to tighten as the housing sector slows, imports gain share and customer consolidation continues. In light of these changes, building product manufacturers must update their channel pricing strategies, including prices, discounts, rebates, promotions, terms, conditions and programs to optimize sales and profit margins.
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Lead or Follow: Channel Pricing Strategies For Today's Economy

Channel pricing is one of the least understood and most complex aspects of a supplier’s go-to-market strategy. To develop an effective strategy, suppliers must establish discount levels for various customer segments and multiple channels serving each segment. In addition, e-commerce and evolving logistics capabilities are changing the roles that partners perform and, therefore, the compensation that they should earn. Channel power, conflict, and competition further complicate the development of effective strategies. To be economically rational, a strategy must consider go-to-market costs. Suppliers, however, have different costs to serve each channel and partner. Furthermore, distributors, retailers, and other channels have unique cost structures and value propositions of their own.
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Can You Buy Your Channel’s Loyalty?

In the past few years, we have noticed a trend among manufacturers to add loyalty incentives to their channel strategy. Typically, these take the form of discounts or rebates in the 2% to 10% range. These incentives replace traditional volume deals and encourage distributors, retailers, VARs or other channel partners to remain or become committed to a supplier’s line.
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The Impact of Manufacturer Rebates on Channel Sales Behavior

How do your dealers, distributors or resellers pay their sales people? Most provide their sales reps a percentage of the margin typically in the 25% - 33% range. Arguably, this percentage of the margin encourages distributor sales representatives (DSRs) to sell products at the highest possible price. (For convenience we use the term "distributor" to apply to any channel partner. This includes dealers, resellers and other B2B channels).
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