Manufacturers and distributors must have as smooth a relationship as possible to guarantee that inefficiencies are rapidly corrected, processes are aligned, and communication is open and regular. This is especially true when a collaborative arrangement between a manufacturer and a distributor to supply products to a certain market segment at a discounted price has been made. These agreements are otherwise known as special pricing collaborations.
This blog intends to highlight the reasons why they exist and the challenges they can present. By overcoming these issues, all parties involved can gain competitive advantages over their rivals through the formation of strong relationships.
Special pricing agreements are usually established between a distributor's branch or pricing department salesperson and the manufacturer's field sales team.
The agreements negotiated will vary depending on the industry and materials, but usually, special pricing agreements come in the form of a percentage discount of the given price, a fixed amount per unit, or support to a guaranteed profit margin.
Why do special price agreements and collaborations exist?
Manufacturers can increase their sales by supporting the pricing of their products to certain end-customers through these agreements.
There are a few reasons for this. Primarily, some distributors already have a relationship with their current customers, so by collaborating with these distributors, you can easily access their clientele, often increasing sales. Additionally, the financial benefits gained due to special price agreements for both manufacturer and distributor will ensure the end-customer gets a predictable and attractive price for the products.
There are a few challenges that should be considered when engaging with special pricing agreements and collaborations. For one, special pricing agreement claims are calculated retrospectively. Distributors will make these claims to their manufacturing partners, providing supporting evidence and data to ensure practices are carried out according to GDPR rules and regulations. This can be problematic for many reasons, the first being that varying product mapping undertaken by manufacturers and distributors will have their own unique code. This means that the process of matching and presenting data is complicated. Unsuccessful matching may lead to missing data, as well as duplications, but if claims are not matched properly, payments may not be made.
Secondly, because of the continuous nature of special pricing collaborations, continual renegotiations of terms between both parties can make documenting records difficult. If not done properly, large claims may be missed, leading to unsuccessful support claims.
Notwithstanding this, special pricing collaborations facilitate the formation of strong relationships between distributors and manufacturers. By working collaboratively, both parties can gain significant advantages over competitors, resulting in increased sales and market share.