Discounting Is Usually a Sourcing Problem

When a market turns price-sensitive, the first instinct is almost always to cut the price. It feels responsive. It looks decisive in a meeting. In my experience it is the most expensive habit a distribution business can pick up, because a discount behaves differently from a promotion. Customers remember the lower number, and so do your competitors.

I learned the alternative in the tyre business, in the Middle East, in a company I owned and ran myself.

We started in OTR, the tyres fitted to mining and earthmoving fleets. Good work, technical work, and a narrow book. Gross margin sat at roughly 7 percent, which is what a thin pass-through book earns when you are essentially moving someone else's product from one place to another.

Then the region went through an economic crisis and the market moved hard toward price. Buyers who had been arguing about cost per hour started arguing about the invoice. The obvious response was to discount the lines I already carried. I did not do it, for one reason that had nothing to do with discipline and everything to do with arithmetic: discounting the premium lines would have bought me maybe two quarters, damaged the position I held with those brands, and left me with the same narrow book at a worse price.

So I went looking for the price point instead of cutting toward it. I signed supply agreements with manufacturers in Indonesia and China and brought those lines in alongside the premium brands. Then I added light truck radial, and later passenger car radial. Three categories where there had been one, two sourcing tiers where there had been one.

What changed was not my price list. What changed was how much of the demand curve I could serve. A regional wholesaler who could previously take one line from me could now take three, at three different price points, from one supplier with one set of terms. That made me easier to buy from, and it made me worth more shelf inside a book that already had plenty of tyre brands in it.

The network went from 10 distributors and locations to 54 in under two years. Gross margin moved from roughly 7 percent to roughly 20 percent over the same stretch.

Two things about that are worth saying plainly, because I have heard the story told back to me in the wrong order.

The first is that the range came before the network, not alongside it. I did not go recruit 44 partners and then find products for them. I widened the basket, and the partners came because the basket was now worth carrying. Distribution people will recognise the difference. Recruiting into a narrow book is a grind, every signing negotiated one at a time. Recruiting into a broad one is much closer to an easy conversation.

The second is the question a careful reader should ask: how does adding cheaper product raise your margin rather than dilute it? For a reseller it does not. It dilutes, every time, and anyone who tells you otherwise is selling something. It worked for me because I held exclusive appointments on all of it, the premium brands and the Asian brands both. When you are the sole route to market for a line in your territory, the margin sits in the appointment rather than in the product. Each category I added extended a position I controlled instead of adding another thin pass-through.

That is the part that travels. If you are a reseller, the honest answer is that a wider range will cost you margin and you should widen anyway for other reasons, or not widen at all.

What I take from it now, across categories that have nothing to do with tyres: when a customer tells you your price is too high, they are often telling you your range is too narrow. Before anyone touches the price list, the question worth asking is whether there is a product you could source that serves that price point without disturbing the price of what you already sell. Sometimes the answer is no. But it is a cheaper question than a discount, and it is almost never the one that gets asked first.