Special pricing agreements (SPAs) are an essential technique in a manufacturer’s strategic toolkit. Currently used by 77% of all distribution firms in North America, the majority of distributors believe that SPA incentives will become even more important to vendors’ marketing strategies in the near future.
Many businesses find that special pricing agreements allow them to take advantage of unique trading opportunities they might otherwise miss out on due to pricing conflicts – but like any incentive program, SPAs can only benefit your business if they’re managed efficiently. Biting off more than you can chew can quickly turn these advantageous deals into a costly admin burden.
We’ll be covering the basics of special pricing agreements and how can they benefit your business without the extra work.
What are Special Pricing Agreements?
In a general sense, SPAs are a flexible pricing technique that manufacturers utilize to gain and protect market share. More specifically, SPAs are arrangements between trading partners offering discounted pricing on specific product ranges or SKUs, usually to a defined market segment. If this concept sounds familiar, it probably is – SPAs are known by many names, including sales rebate agreements, contract claims, contract support, support on sales, ship and debt agreements or chargebacks.
Special pricing agreements can be especially useful when competition is high and consumer demand is unpredictable. With rapid-fire shifts in consumer demand keeping the market in a state of volatility, SPAs can serve as an invaluable hedge against unpredictable swings in the market, allowing manufacturers to price on anticipated sales and maintain strict margin expectations.
SPAs are the subject of many misconceptions that can make businesses hesitant to leverage this valuable technique. While it’s true that SPAs effectively lower your profit margin for certain deals, special pricing can benefit your business in a multitude of other ways:
Benefits of Special Pricing Collaboration
1. Tailor your strategy for specific opportunities
Sometimes, intense market conditions call for a bit of flexibility in your pricing strategy. With SPAs, you can offer price-optimized agreements to trading partners as a means of sealing the deal when competition is high.
Special pricing agreements may also be a valuable lure when chasing the proverbial big fish. If you’re trying to convince a major industry player to choose your business over an ocean of other options, SPAs can be a great way to sweeten the deal.
2. Build stronger strategic relationships
With SPAs, your trading partners know they’re getting the best deal on the market – one that only you offer. If distributors are locked into a special price that only one manufacturer offers, there’s little incentive to go looking elsewhere.
SPAs can be a great way to build and maintain loyalty among your channel partners, laying the foundations for reliable trading relationships. They can also incentivize both manufacturers and distributors to collaborate and align on their sales initiatives, shaping the partnership into one of true mutual benefit.
3. Turn better prices into bigger orders
Pricing impacts more than the size of your customer base: it affects every customer’s purchasing strategy, including the volume, frequency and diversity of their orders. When offered a better price under a special pricing agreement, distributors may decide to maximize their benefit by purchasing larger volumes of stock.
Imagine that you’re a manufacturer in the residential construction industry. By offering better prices to contractors, you have the potential to move larger volumes of your products into major homebuilding projects, with ample opportunities to upsell other products that may be useful in the project.
4. Keep up with the competition
A great sales pitch can take you far, but when it comes time to put pen on paper, prices can make or break almost any deal. If a distributor can get a better price from another manufacturer, they’re likely to do so – who could blame them?
At a basic level, special pricing agreements allow you to bypass this dealbreaker and offer better deals than you normally would in the interest of staying competitive. When weighed and calculated carefully, SPAs can be a powerful tool for opening doors that pricing would usually shut your business out of.
5. Avoid disrupting the rest of your channel
Pricing is a delicate matter. For obvious reasons, many businesses prefer to be selective when doling out special pricing. You want to take advantage of the relationships that benefit you rather than constantly shifting your standard price based on volatile market conditions, which can be harmful to a brand’s overall marketing strategy. The purpose of special pricing collaboration is to allow for a necessary amount of flexibility in your strategy to stay competitive, rather than throwing your pricing into disarray.
Overcoming Challenges to Master SPAs
While special pricing agreements can make for smooth sailing in your trading relationships, choppy waters abound for those relying on inefficient processes or inflexible systems to track and manage their SPAs. Businesses attempting to oversee these deals manually may quickly find that the notorious complexity, time commitment and rapid pace of these agreements can create a significant admin burden. Fortunately, automated platforms are catching up to these unique needs, allowing businesses to make better use of SPAs than ever before.
With 75% of distributors in agreement, SPAs are slated to play an even more important role in the future of the supply chain. This means that businesses who get in on the game early and learn how to effectively utilize SPAs can expect to start out ahead of the competition and stay ahead of the curve. Employing a deal management tool such as Enable’s Special Pricing Agreements feature can help you do just that.
Looking for a better way to collaborate on pricing and manage your SPAs? Download our white paper, The Fundamentals of Special Pricing Agreements, to learn more.