Interesting article by Mike Shatzin about the evolving channel pricing model for e-books. Publishers evidently sell books to retailers at roughly a 50% discount and retailers are free to mark it up wherever they like. With e-books, 5 of the 6 largest publishers forced Amazon to adopt an agency model where the publisher sets the price and the channel’s margin. This is a good example of the suppliers, in this case the publishers, realizing their value without ceding that value and the corresponding margin to the channel.
This new pricing service by Tech Data puts more pressure on vendors to manage their price exceptions more effectively. Distributors and VARs will have the tools to track exceptions and exploit inconsistencies.
Smart vendors try to lock in their customers with long term contracts and volume pricing. It seems like the trend, however, is for customers to increasingly negotiate everyday low prices without volume or long term deals.
Mark Checksfield, of Managed Service Provider Naverisk said that the firm is winning over clients because of its non-contract based pricing model.
“If people look at our pricing model they find it quite revolutionary,” he said. “The old licensing way is that you buy a license to use a major vendor’s software but you pay a fixed sum of money over a period of say five years. But our prices have no contract, you just pay as you use.”
They were saying that they didn’t want to commit for that length of time so our model’s perfect. We can literally, from month to month, switch the button on or off, on however many agents and licenses you want for your network.”
Intel’s Eric Thompson, Director, North America Distribution Sales & Channel Marketing:
“The channel is poised to take advantage of the corporate refresh,” Thompson said. “We believe 2010 will be a year of fantastic growth.” That growth, Thompson said, will come in part from new products…
Hope he’s right!
Wedge Networks recently announced a new partner program that includes:
- Customer satisfaction surveys
- Deal registration
- Lead distribution
- “Protective” renewal margins
- Market development support
- Regional sales incentives
- Partner certification
Sounds like a great program. I wonder however, whether they can implement with impact across all of the elements. We often find that companies spread themselves too thin by developing programs with too many elements. I would rather see a program with one piece that makes a major impact rather than a program that spreads limited resources across the board.
Interesting to note that Microsoft’s pricing for its upcoming Office 2010 release will be 35% higher in the UK than in the US.
As reported on the Erictric blog: When asked about the price by IT Pro, Office Product Manager Chris Adams responded: “There are different market dynamics – channel margins, for example, local market conditions, foreign exchange – that we need to take on board.”
A really interesting article by Timothy Aeppel about Caterpillar and the “Bullwhip effect” appeared in the WSJ recently. The bullwhip effect occurs when “small increases in demand cause a big snap in the need for parts and materials further down the supply chain.”
In the article, Jim Owens, Cat’s CEO, talked about growth it expects this year for itself and its suppliers. Cat will need to increase its production by 10% to 15% even if demand for equipment is flat. According to Owens, “the inventory burn-off is over.” The increased production will be driven by the need to restock dealers who cut inventory last year. Under this scenario, suppliers will need to increase their production by 30% to 40% because they are restocking their own shelves, Caterpillar’s and the dealers.
Under a modest growth scenario, many suppliers to Caterpillar will need to more than double their shipments to Caterpillar.
Manufacturers need to make sure that their channel programs are ready for the bullwhip. Many suppliers base their discount structures and rebate programs on growth. For many companies, rebate payouts in 2009 were very low or almost non-existent. In 2010, we can expect significant growth and payouts, simply from the bullwhip.
Entrenched North American and European market leaders usually have brand, channel and sales force advantages over lower priced, Asian imports. What price differentials overcome these go-to-market advantages? Of course it will vary by industry but 20% to 30% certainly seems to do it.
In the market for solar cells, Chinese manufacturer JA Solar is rapidly taking market share due to its cost and price advantage. According to their CEO, “Several European solar manufacturers have a strong brand, sales channel and access to end market, but do not have the right cost structure, and they cannot compete effectively in the new market and pricing environment.”
JA Solar is competing on roughly 20% margins. Its competitors appear to require 33% or more. That gives JA Solar at least a 19% price advantage if their cost of goods sold were identical and we believe JA Solar’s costs are lower. Clearly in this case, a 20% to 30% price advantage appears to swings business to the low price supplier even without the advantages of sales force, brand and channel.
What isn’t sold on a monthly fee basis anymore? Hulu, the provider of free TV content on your computer is now looking to charge a $4.99 monthly fee for back episodes. The New York Times is now charging a montly fee for people regularly viewing articles on their web site. In the high tech space, more and more vendors like Dell and Lenovo and their partners are offering managed services– hardware, software and support all for a monthly fee. Whatever you or your partners are selling should you consider selling it for a monthly fee?
Suppliers often question the value of the channel. Why not just sell direct and make more money? Google’s new Nexus One phone offering highlights the value of the channel. Google’s direct-only sales appear less than stellar. The reason – no place for customers to go for support. This is very problematic given the complexities of the new Android operating system. Next time, Google, might sell more and make more money by paying for the value add of the channel.
