Home > Blog > Newsletter > Change that Channel? Nike Resolves to Fix Pricing Conflict with Amazon

Posted 26 Jul, 2017 | Posted in: Newsletter, Pricing | Tagged: , , , ,

For over a decade, athletic titan Nike declined to partner with Amazon, America’s largest online retailer. Nike held out, wanting to carefully control brand messaging while enjoying higher margins through its distribution network of brick and mortar stores. On June 29th, Nike conceded by confirming a deal with Amazon to sell and distribute apparel and footwear.

Ironically, consumers may not notice this seemingly tectonic shift because little has changed. Consumers have purchased Nike through Amazon for years; it’s just that those sales aren’t coming through Nike-owned channels.

Enter third-party distributors, who acquire products at wholesale prices either directly from Nike or from other retailers’ excess inventory at prices that enable them to profitably sell on Amazon. Business for these “resellers” is booming; an industry survey uncovered that Nike is the most-purchased apparel brand on Amazon.

So why partner with Amazon now?

Two words: channel conflict. Nike finally acknowledged that third party sellers are cannibalizing its direct revenues and is counting on recapturing lost sales by selling products directly on Amazon.

Simply opening a new channel for business is only part of the solution.

Nike also has a fundamental pricing problem – some resellers are buying directly from Nike at low prices that perpetuate the resale market on Amazon and other channels. Nike must close the gap between reseller and direct channel prices to fully address the conflict.

We recently worked with a client facing the opposite problem; they were focused on encouraging resellers to drive sales across new channels. Unlike Nike, our client’s reseller prices in some cases exceeded direct channel prices. Reseller partners were angered when they worked hard to educate clients, only to lose sales to lower-priced direct channels. Fixing this conflict required careful review and monitoring of channel prices to ensure reseller prices remained low enough to incent resellers to push our client’s products.

Addressing channel conflict through sales and pricing strategies can strike a chord with investors. If you were watching the market the day after Nike’s announcement, you would have seen their stock jump by a whopping 11%. If managed sensibly, resellers can add tremendous value to your business; managing segment pricing is key to establishing incentives that drive desired outcomes in your market.

How does the reseller channel fit with your organization’s market strategy?

 

 

 

Pete MorelliWritten by Pete Morelli

Pete is a Consultant with Holden Advisors.

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