Channel-Based Pricing - Definition & Meaning
What is Channel-Based Pricing?
Channel-Based Pricing is adopted in order to set price depending on the means of delivery of goods or services.
Channel power, conflict, and competition further complicate suppliers go to market strategy, thus they use different channels to get the product to the market. Thus the price discount is determined based on the channel reach or transaction volume.
For various customer segments discount levels should be established which has multiple channels serving different segments. Compensations needs to be decided accordingly as e-commerce and evolving logistics capabilities are changing the scenario.
Channel Pricing is different from traditional pricing because traditionally price was based on the value of the product .But now the value is determined by the entire customers experience including the interaction that the customer has with the distribution channels. The channel pricing covers the charges for the third party involvement on supplier’s side. It drives the supply chain and adjusts the channel cost. Five channel pricing strategies—functional discounts, activity-based pricing, results-based programs, multi-price strategies, and resale price setting.
Functional Discounts: When the supplier breaks its traditional discount model into discrete functions. The suppliers also unbundles services and compensations and they only pay for the best services and for the functions that are performed.
Activity-Based Pricing: Moving beyond prompt payment discounts, it is followed to motivate an array of value-added services.
Results-based programs: It focuses not on the activities but on the desired objectives being fulfilled.
Resale Price Setting: Eliminates destructive channel pricing conflict.
For example: Books sold through Flipkart has more discount than retail Bookstores
Hence, this concludes the definition of Channel-Based Pricing along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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