Learn something new every day More Info... by email
The relationship between pricing strategy and channel distribution can be drawn from the fact that proper pricing strategy is one of the business strategies utilized by an organization, and the effective control or monitoring of the distribution channels helps ensure that the prices of products remain within the price limits set by an organization. Pricing strategy and channel distribution are also connected in the sense that the close monitoring of the distribution channels also helps ensure that the prices do not conflict with each other since different distributers might be tempted to tag on their own extra prices, leading to differing prices and a perception of price inconsistency. Another connection is the fact that a well-balanced external distribution channel can help a company that lacks the resources to internally distribute its products, further reducing the price of its products since the company would not be obliged to spend money in order to set up and maintain a sales team who would engage in direct sales and other considerations.
One of the links between pricing strategy and channel distribution is derived from the effect that a lack of control over prices has on the manufacturer or importer of the product. Companies usually utilize pricing as one of their methods of effective strategizing. As such, any deviation from the determined price range will undermine the efforts of the business toward the implementation of the predetermined price. For example, a manufacturer of candles could set a maximum price for a box of 50 individual candles at a determined price that takes into consideration an allowance for a margin of profit by distributors and retailers. When the distributors and retailers tag on extra amounts in excess of the maximum price set by the candle manufacturer, it defeats the aim of the company, making it necessary for such a company to put measures in place that will curtail these actions.
Pricing strategy and channel distribution are also connected by the fact that the availability of good distribution channels means that a company will not have to spend any money on setting up its own internal distribution channel. Setting up a private distribution channel will involve hiring, training and paying the remuneration of a sales team, providing logistics to the sales team to enable them to effectively carry out their duties, and setting up outlets for the further distribution of the product. Where the company does not need to do this, the money that would have been saved will allow it to further reduce the price of the product.