Currently, under unprecedented channel squeeze, many manufacturers have adopted separate channel and item operations. For example, Coca-Cola has long used a separate channel model and recently began moving into rural terminals to deepen channel penetration and capture a share of the rural market. However, an unavoidable issue in 'opening a second battlefield' is that improper pricing can lead to 'self-destruction.' Therefore, scientific and reasonable pricing is crucial. So, how should pricing be set to resolve the conflict between channels and prices in separate channel operations?
The author believes that to resolve channel and price conflicts and avoid price 'collisions' between channels, we must segment and position channels. Only by clarifying channel positioning and nature, introducing different products to 'each in its own niche,' and then 'divide and conquer' can channels coexist peacefully. Of course, there are many cases where small and medium brands introduce the same product into different channels, but pricing needs to be well set and controlled. However, as the market becomes increasingly segmented, products will also be segmented. Therefore, introducing different products into different channels will be the trend in future market operations. Pricing should fully consider channel segmentation and positioning.
I. Channel Segmentation. Sales channels are generally divided into three types: distribution channels, retail terminals (KA), and special channels.
Distribution channels mainly refer to wholesale markets at all levels, wholesale-retail stores, grocery stores, non-self-service department stores, community convenience stores, and farmers' markets. Their characteristics are extensive operation and management, average shopping environment, low operating costs, suitable for large-scale in-and-out, and concentrated on daily consumer goods.
Retail terminals here mainly refer to various retail-oriented chain supermarkets and hypermarkets, such as multinational or domestic hypermarkets (KA stores), chain B and C stores, etc. Their characteristics are complete product categories, generally unified or centralized distribution, good shopping environment, fine management, high operating costs, and open-shelf self-service.
Special channels refer to a third type of sales channel besides distribution and retail channels, mainly including schools, institutions, internet cafes, prisons, communities, and group buying. Their characteristics are specific consumer groups or concentrated purchasing/consumption, generally bulk purchases, requiring certain connections or social relationships. Compared with distribution and retail channels, special channels have relatively lower operating costs, but require higher comprehensive quality and operational skills of the business team.
II. Price Setting. Different sales channels have different operating costs and models. Therefore, pricing should be adapted to local conditions, and different price execution models should be formulated according to different sales channels.
Distribution channels are key channels for manufacturers to increase product sales, expand market share and coverage, and enhance product and corporate influence. As an FMCG, to quickly open up the situation and seize the market high ground, it is necessary to use distribution channels for rapid market coverage. However, distribution channels are also prone to cross-regional selling and price dumping. Therefore, a more stable pricing strategy needs to be formulated and implemented. In terms of price setting, the price composition for distribution channels generally includes three types: A. Ex-factory price, or invoice price, generally referring to delivered price or landed price. B. Monthly rebate, which is a normal rebate set to control channels and avoid cross-regional selling, usually settled the following month. C. Additional policies, such as additional investment, promotions, and tiered policies set to encourage core distributors or key customers. The invoice price in distribution is generally given to distributors or agents. Therefore, the price must be lower than the direct supply price to special channels and retail terminals. Moreover, some retail terminals or special channels may purchase from wholesale markets in distribution. As a manufacturer, price differences must be reserved to reasonably allocate channel profits and ensure smooth sales channels.
Retail terminals are an important sales channel for enterprises to build brands, establish image, and protect profits. However, they are also a channel that manufacturers find 'headache.' B. VAT invoice costs, i.e., the tax burden borne by enterprises, which must be included in product costs and price setting. C. Additional personnel costs, such as wages and subsidies for promoters, shopping guides, or stock clerks. Some enterprises use a reverse calculation method to set prices for supermarket retail channels, i.e., by reasonably allocating profits among manufacturers, distributors, and supermarkets to ultimately determine the ex-factory price. This method is also a scientific and reasonable pricing approach. Retail terminal supply can be either distributor supply or direct factory supply. Regardless of the method, the author advocates entering with sub-brands, sub-products, and sub-items, i.e., operating retail terminal products separately from distribution products. Because retail stores differ from distribution channels in product performance, grade, and internal/external packaging, separate operation is a long-term approach. Pricing can follow the principle of 'high rather than low.' Only by setting prices separately by channel and product can channel members' profits be better protected, and the market can be stable in the long run.
Special channels are a 'main production area' for enterprise profits because they require relatively small investment and quick operations. Therefore, they are increasingly favored by FMCG manufacturers. Factors to consider in setting prices for special channel products include: A. 'Public relations' costs needed to build relationships. B. High commissions for intermediaries such as group buying brokers or relatives of unit leaders. C. Daily maintenance costs, such as regular tea parties, symposiums, and mailing materials. Product setting for special channels must adhere to 'high quality, high price,' i.e., quality must be guaranteed, products must have selling points, and prices must be fair.
In daily market operations, general small and medium enterprises often adopt a 'one-size-fits-all' approach when entering channels, i.e., whether it is distribution, retail terminals, or special channels, they use one product and one price. This has advantages, such as ease of execution, but also disadvantages, such as easy price chaos. However, more enterprises, especially large brands, have increasingly adopted separate item and channel operations in recent years. That is, different brands and products operate in different channels to maintain market order and avoid adverse phenomena such as price inversion and cross-regional selling. For example, Anyang Jianfeng Biscuit Factory, for traditional channels, mainly offers the 'Jiangshun' and 'Youneng' series; for supermarkets, it launches the 'Jinjianfeng' series, which uses food expert Liu Yiwei as spokesperson. The prominent display in supermarkets reflects the enterprise's good brand image. Anyang Jianfeng Biscuit Factory achieves the strategic goal of separate channel operations and 'each goes its own way' through two different mission products.
The setting of product prices is crucial to the success or failure of market operations, the size of enterprise profits, and strategic gains or losses. However, in any case, product pricing must follow the laws of market economy and cannot be arbitrary. Only when product prices are well aligned with the market can products perform well in the market, ultimately gain consumer favor, and achieve a win-win situation where distributors profit, consumers are satisfied, and manufacturers earn profits.
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