Special pricing

Vendors routinely offer special pricing to OEMs and resellers to ensure their products are used in large deals and projects. Fear of losing out to a competitor drives them to discount. But making sure that the specially priced kit is actually used in the projects they were intended for is a vital skill for vendors to develop.

  • E-Mail
By  Stuart Wilson Published  August 11, 2004

Vendors routinely offer special pricing to OEMs and resellers in order to secure large deals and projects. Fear of losing out to a competitor drives them to discount. But making sure that the specially priced kit is actually used in the projects they were intended for is a vital skill for vendors to develop.

Distributors starting in-house assembly operations need to be carefully monitored by vendors to prevent components sold at special prices for specific large tenders — or specifically for the assembly operation — finding their way into the distribution channel.

Any product that is re-diverted from OEM and assembly into distribution can enter the channel at lower prices damaging vendors’ wider pricing policies in the process. In theory at least, any direct buying relationship that a distributor-owned assembly operation has with its vendor partners should be distinct from the buying relationship of the distribution operation.

The moment product is diverted into another channel it becomes grey product. If it enters at a substantially lower price it can leave authorised distributors — without access to special pricing — as well as the resellers that have bought the kit from them, stuck with product at uncompetitive prices.

Making sure that special pricing policies are not abused can be a laborious and time-consuming process for vendors to embark on. Often they are torn between the desire to make the large transaction that warranted special pricing in the first place and the need to keep an eye on the details of the contract or project that the OEM or reseller has touted to them.

Some do this better than others. In a few cases, the vendor will press the reseller or OEM for specific details about the project and tender and even contact the end-users involved to check the validity of the deal. Others continue to adopt a more lax approach to verification.

Special pricing has become part and parcel of the global IT channel. If used properly it is a valuable weapon in the vendor arsenal that gives them a better chance of getting their products into large deals and competitive tenders. If abused, the reverberations can damage channel relations across the board.

There is no quicker way to lose the loyalty and trust of the reseller community than for a truckload of dirt-cheap product from a particular vendor to enter the market. This is something that vendors should examine carefully if they are serious about encouraging resellers to only buy from authorised distribution channels.

Looking into special pricing and the blurring of OEM and distribution channels is a murky world implicitly linked to grey channel product. It remains an issue and in many cases grey product derived from special pricing abuse is actually entering the Middle East from outside the region. Referring to it as ‘special pricing abuse’ may in itself be a bit too strong. Rather, it is the misappropriation of product through channels that it was not originally intended for.

Vendors have to carefully weigh up the pros and cons of their special pricing policies. In itself, these deals and OEM relationships are a vital channel to market and some damage to relationships within the standard distribution channel can be tolerated. But there is a tipping point where the disadvantages start to outweigh the advantages of special pricing.

Distributors and resellers alike need to keep the vendors aware of the situation they are seeing down at street level and explain the negative impact it is having on their business. These areas need to be talked about by the IT channel but it is worth remembering that everyone — be they a vendor, distributor, dealer, assembler, OEM or integrator — has their own agenda.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code