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Every industrial executive has felt it. The product portfolio keeps growing. Teams justify each addition — a customer requested it, a distributor needed a variation, the sales team wanted optionality. Years later, the catalog is three times its original size, and somehow margin is harder to defend.

This is not bad luck. It is a structural pattern with a measurable signature. Research benchmarks have documented what it looks like from the inside: active items grow by 31% while total sales increase by only 6%, producing a 19% decline in sales per SKU. The business appears to be expanding. The economics are quietly contracting.

The problem executives cannot see in their current data

Most organizations measure SKU performance with incomplete economics. Revenue per SKU is tracked. Contribution margin, sometimes. But the true cost-to-serve — the complexity costs buried in forecasting friction, changeover time, distributor mindshare, and customer service load — rarely gets allocated accurately to individual products.

Without that allocation, unprofitable SKUs hide inside averages. The portfolio expands because the cost signal arrives late, if at all. This is precisely why cost-to-serve modeling has become a core discipline in supply chain profitability. Organizations that can accurately attribute indirect complexity to specific products and customers are the ones that can make rational portfolio decisions. The rest are managing opinion, not economics.

Why portfolios bloat in industrial and manufacturing commerce

SKU growth in B2B industrial markets follows repeatable patterns. Customer-specific variants get created for a single OEM request and never retired — five years later, they are still being planned, stocked, and supported. Channel partners ask for unique configurations, and each request appears reasonable individually while collectively fragmenting velocity. Innovation pressure gets expressed as breadth rather than depth. And most critically, companies build strong processes for launching products but virtually no governance for retiring them. The portfolio becomes a one-way door.

Harvard Business Review identified this dynamic decades ago: unchecked product-line expansion "disguises cost increases" and disturbs channel relationships. The finding is still current. The only thing that has changed is the scale at which the problem compounds.

Separating good complexity from bad complexity

The strategic question is not whether to simplify the portfolio. It is which complexity is worth paying for. Good complexity creates value that exceeds its incremental cost — a SKU that opens a high-margin segment, anchors a key distribution relationship, or delivers differentiation customers demonstrably pay for. Bad complexity fragments velocity, dilutes distributor mindshare, and consumes planning capacity without corresponding return.

The board-level problem is that most portfolios carry bad complexity because it is emotionally justified — customer requests, sales pressure, legacy relationships — while the true cost remains invisible.

When rationalization happens, the margin signal is significant

The evidence on portfolio rationalization is consistent. In a 2024 packaging industry study, respondents reported that SKU reduction contributed 65 to 90 basis points to gross margin improvement relative to 2019, with further gains expected from continued rationalization. McKinsey describes assortment optimization as redirecting resources from margin-eroding SKUs toward higher-margin opportunities. And in a Bain survey of more than 900 executives, nearly 70% acknowledged that excessive complexity raises costs and hinders profit growth.

Leaders already suspect this. The challenge is not conviction — it is diagnosis.

A CEO-grade test: permission to exist

A practical filter: every SKU in the portfolio should be able to answer for itself. It earns its place if it is a margin anchor with high contribution after true cost-to-serve, a segment doorway that unlocks a profitable target, a channel lever that improves distribution sell-through, or an innovation wedge that creates differentiation customers pay a premium for. If it is none of those, it is portfolio noise — consuming attention, diluting execution, and funding complexity that serves no strategic purpose.

The Kerith lens

Portfolio strategy is not subtraction for its own sake. It is commercial clarity in the face of accumulated decisions that were never designed to work as a system. The companies that scale without strain share one consistent practice: they stop treating portfolio decisions as local, reactive, or sales-driven. They manage the portfolio as enterprise economics — with defined growth metrics, allocated cost-to-serve, governed exit criteria, and protected channel logic.

The portfolio is not a catalog. It is a commercial architecture. Treat it accordingly.

Traditional distributor networks and dealer ecosystems once formed predictable pathways to customers. That predictability is eroding. Two powerful forces — retailer vertical integration and supplier horizontal consolidation — are restructuring channel access, economics, and power. The manufacturers who understand this shift will redesign their go-to-market architecture accordingly. Those who do not will find themselves competing not just on product, but on structural disadvantage.

Retailer vertical integration changes the rules of access

Vertical integration means a company extends its control either upstream into suppliers or downstream into distribution and customer access. Large industrial supply retailers and category specialists are doing exactly this — absorbing distribution, logistics, and inventory functions to control more of the customer experience. They are less willing to accept traditional distributor margins and more inclined to use direct contracts, private labeling, and proprietary service offerings.

This is not a fad. Recent research on vertical takeovers in European manufacturing finds that when firms integrate vertically, sales increase and markups can actually decline over time as efficiencies take hold — even while competitive dynamics shift fundamentally. For industrial manufacturers that rely on independent partners, this creates vertical pressure on channel economics: integrated retailers can demand better terms, expect more data transparency, and wield stronger bargaining power because they control prime customer access.

One structural risk of downstream retailer integration is market foreclosure. When integrated players control inventory access upstream or downstream, smaller partners may find themselves edged out of certain channels entirely — not through overt competitive action, but simply through structural positioning in the chain.

Supplier horizontal consolidation reinforces competitive scale

At the same time, suppliers are consolidating laterally. Horizontal integration — expanding by acquiring or merging with others operating at the same point in the value chain — is accelerating in industrial markets. The objective is familiar: accelerate scale, negotiate improved terms with logistics partners and channel intermediaries, and reduce redundant overhead.

But horizontal consolidations increase channel complexity in their own way. Larger combined entities can leverage portfolio depth to negotiate exclusive distribution arrangements, co-op programs, or differentiated pricing support. As competitors bulk up horizontally, manufacturers who lack similar scale may find themselves edged out of tiered channel placements, facing harder price negotiations and competing not just with product features but with channel economics they cannot match.

The strategic tension: control versus access

Retailer vertical integration prioritizes control. Integrated retailers can prioritize their own logistic efficiencies and profit models over traditional manufacturer margin structures. Supplier horizontal integration pursues scale. Competitors consolidating at the same supply chain level aim to strengthen distribution reach and negotiate tighter terms through sheer size. In both cases the end result is channel tension: traditional channel partners become less predictable, power balances shift, and economic models must adapt.

Channel conflict — where manufacturers disintermediate, or where distributors compete at the same level — is a familiar issue that leaders still wrestle with. But modern channel conflict has a strategic backdrop. Retailer integration means channels are no longer neutral pathways; they are owned competitive arenas. Supplier consolidation means fewer but stronger negotiating partners.

What leaders need to do differently

The evolving channel environment demands three structural shifts in channel strategy for industrial businesses.

Reframe channel partners as strategic nodes, not passive conduits. Traditional thinking treated channels as places to push products. They are now active, sometimes competitive players with their own economic logic and priorities. Leadership must map channel incentives and cost-to-serve metrics rigorously — and build strategies around those realities, not assumptions from a decade ago.

Build multi-layered go-to-market logic that accommodates partner ownership structures. Strategies must account for both integrated retailers controlling downstream access and consolidated suppliers exerting scale pressure. This means defining value exchange mechanics based not purely on discount tiers, but on co-managed performance outcomes: sell-through velocity, data sharing, joint forecasting, and shared accountability for market results.

Shift from product-centric distribution to ecosystem playbooks. As channels become competitive arenas, manufacturers must design offerings and agreements that recognize channel economics. This includes differentiated value packages per partner type, clear pricing rules that prevent margin erosion, and conflict mitigation mechanisms that respect each partner's unique commercial position.

The bottom line

Channel strategy is no longer a distribution afterthought. It sits at the intersection of structural ownership changes in both retailer and supplier landscapes. CEOs and COOs must recognize that integration strategies by channel partners are not noise — they are competitive pressures reshaping access, economics, and control. Leading companies will stop treating channels as pipelines and start treating them as strategic ecosystems, with clear economic rules, negotiated value exchanges, and performance-based alignment. That is how channel strategy evolves from a cost center to a competitive advantage.

In most industrial businesses, pricing sits under finance not because it is inherently a finance problem, but because pricing has historically been treated as a reactive discipline. Price lists are updated annually. Discounts are used to close deals. Competitive pressure, customer negotiation, and cost fluctuations drive decisions instead of a defined pricing architecture. This cost-first, reactive approach may seem logical. Over time, it corrodes profitability and weakens commercial performance in ways that do not appear on any single quarterly report — until they do, all at once.

Pricing should not be a pipeline activity that happens after cost plus margin. It should be a core commercial function that drives growth.

Why reactive pricing destroys margin quietly

In many B2B and industrial settings, pricing decisions are made on the fly in response to sales pressure or competitor moves. This pattern is well documented in commercial pricing research: many organizations lack a coordinated pricing strategy and instead default to behaviors like annual price increases, end-of-quarter discounting, and ad hoc negotiation tactics. That informal behavior rarely aligns with value, segment economics, or long-term strategy — and it erodes margins over time in ways that are almost impossible to trace back to a single decision.

Strategy experts at the Boston Consulting Group are unequivocal on this point: pricing at its best is a strategic choice, not a mathematical afterthought. Pricing decisions shape how value is shared between buyer and seller and should be anchored in competitive advantages and commercial objectives. When pricing is reactive rather than strategic, companies enter a cycle of margin compression that is nearly invisible until it becomes structural.

What pricing governance actually is

Pricing governance is the framework that determines how pricing decisions are made, by whom, and based on what inputs. It is not about enforcing a finance department checklist. Governance provides clarity on authority, process, and alignment so that pricing decisions reinforce the company's commercial goals rather than undermine them.

A strong pricing governance framework does three things. It protects profits and ensures consistency across products, segments, and sales channels. It aligns pricing decisions with enterprise objectives — margin targets, market positioning, and customer segment economics — rather than short-term discount wins. And it creates a structured, repeatable process rather than defaulting to crisis pricing when confronted with competitive or cost shocks. Pricing governance gives the organization clear rules and clear ownership. It makes pricing a commercial lever, not a reactive negotiation outcome.

Pricing as a growth function

Leading firms are now treating pricing the same way they treat portfolio strategy, channel strategy, or go-to-market investment. They embed governance into operations and tie pricing performance to growth outcomes. Research from BCG on industrial goods underscores this shift: "Pricing innovators are achieving higher margins, stronger commercial positions, and better growth prospects by linking commercial strategy to everyday price decisions."

In other words, pricing leadership is no longer about setting a markup percentage. It is about shaping the economics of every transaction in service of strategic commercial goals. This shift elevates pricing governance from a finance checklist to a commercial discipline that captures value rather than sacrifices it, enables differentiated pricing across customer segments, improves forecasting and planning accuracy, and reduces margin leakage across channels and regions. Organizations that govern pricing well do not treat each price decision as a tactical concession. They treat it as a commercial choice.

What happens without governance

When pricing lacks governance, the consequences compound across the organization. Sales negotiates in silos and concessions stack invisibly. Pricing changes are undocumented or inconsistent across regions and channels. Finance cannot trace margin erosion to its source. Commercial strategy and pricing strategy diverge until they are operating from entirely different assumptions about what the business is worth.

B2B pricing experts note that in organizations without structured pricing governance, sales, finance, and marketing often work from different assumptions about value — leading to inconsistent pricing and lower lifetime value per customer. Even traditional strategies like cost-plus, value-based, or competitive pricing fall short if they are not tied to governance mechanisms and commercial performance metrics that leadership can actually track.

Turning pricing into a growth lever

Effective pricing governance is not a one-time project. It is an operating discipline with its own rhythm and rigor. It requires defined pricing authority — clear roles and responsibilities for who can change prices, under what conditions, and with what approvals. It requires pricing rules and policies that standardize base price frameworks, discount management, and exception handling. It requires performance metrics tied to margin by product, segment profitability, and pricing adherence — not just revenue. And it requires regular governance forums where pricing decisions are measured against strategic objectives, and deviations are understood and corrected before they compound.

A CEO-level perspective

Industrial businesses face margin pressure from input cost volatility, customer expectations, and competitive intensity. Many leaders instinctively look to operations, procurement, or product innovation for answers. But pricing governance is often the most leverage-rich discipline they overlook. When pricing is governed as a growth function, it unlocks better alignment between revenue and profitability goals, more disciplined commercial execution, stronger long-term customer relationships, and higher predictability in revenue streams. Pricing governance should not sit in a finance silo. It should sit at the intersection of commercial strategy and execution — owned at the leadership level, measured like any other growth function, and treated with the rigor it deserves.

Buyers now compare, verify, and shortlist before your sales team ever enters the conversation. In parallel, generative AI is compressing the cost and time of producing launch assets, market research, and competitive analysis — which means more competitors can show up faster with credible messaging, sharper packaging, and polished pages. The result is a structural shift in go-to-market. For low-differentiated products, long rollout roadmaps are increasingly a liability. The market can copy, reframe, or out-message you before your plan finishes executing. What wins is not a longer plan. What wins is a tighter system.

Three forces reshaping the launch environment

AI is changing how customers discover and decide. As AI agents begin to search, compare, and in some contexts purchase on behalf of people, your in-market presence increasingly needs to be readable by machines as well as humans. That shifts emphasis toward structured product data, clear and verifiable claims, and proof that can be evaluated quickly. A compelling brand story is still valuable. But without structured evidence underneath it, it will not surface where it needs to.

The cost of marketing production is collapsing, and speed is rising. When content and variations can be generated faster, more brands can test more messages across more micro-segments. That increases noise and shortens the half-life of any average launch. Large brands are explicitly investing to reduce content production costs and accelerate cycles. The competitive bar for getting to market with professional execution is lower than it has ever been. Which means the bar for actually winning is higher.

Many AI initiatives fail when they are not integrated into the operating system. There is a growing gap between AI experimentation and real commercial impact. If AI is layered on top of broken workflows, it rarely changes outcomes. That matters deeply for go-to-market because launch success is operational, not just creative. Poor integration and unclear value are repeatedly cited as the reasons many AI projects do not deliver measurable results — and a poorly planned launch is exactly the kind of broken workflow that AI will accelerate in the wrong direction.

Why low-differentiation products must shorten the roadmap

When a product is not meaningfully differentiated, the market does not reward long narrative builds. It rewards availability, clarity, distribution presence, and confidence signals. In this environment, long launch plans tend to suffer from three predictable problems.

Time is spent polishing instead of validating. AI makes it cheap to generate launch materials, but it also makes it easy to launch the wrong story at scale. The constraint becomes validation speed, not content creation speed. Organizations that spend the first 60 days refining creative while the commercial story remains untested are building on an uncertain foundation.

Teams confuse activity with readiness. More campaigns, more collateral, more pages. Yet the commercial system is not aligned on what matters most: why this offer wins, who it wins with, and what proof supports it. Activity metrics replace commercial clarity, and the launch enters the market without conviction.

Competitors can match the surface quickly. If your advantage is mostly packaging and messaging, AI makes it easier for others to reach parity on the surface. The only durable edge is route-to-market execution, channel leverage, and proof of value — things that take coordination and commitment, not just content generation.

What modern go-to-market needs to become

The practical response is not "use more AI." It is to rebuild go-to-market as a system designed for faster learning cycles and clearer commercial governance. Here are the structural upgrades that matter.

From launch roadmap to launch loop. Replace long phased rollouts with short cycles that repeatedly answer four questions: What is the claim. Who is it for. What proof supports it. What channel is most likely to produce sell-through. AI can accelerate parts of this loop, but the loop must be governed by commercial truth, not creative momentum.

From campaign planning to channel-specific execution. In low-differentiation categories, winning often comes down to channel physics: placement, partner enablement, pricing coherence, and sell-through mechanics. Your roadmap should be anchored to channel entry and channel performance — not primarily to awareness and reach.

From content to structured evidence. As discovery shifts toward AI-assisted search and recommendation, structured product data, clear specifications, validated claims, and trustworthy proof become more important. This is not a marketing preference. It is distribution readiness for the next interface.

From marketing output metrics to commercial outcome metrics. The go-to-market team should be measured on sell-through, contribution margin, pipeline quality, partner activation, and retention lift — depending on the channel. This is also where many organizations get stuck: AI used only as a production tool does not automatically drive business outcomes. The governance must surround it.

The CEO-level takeaway

In the AI era, go-to-market is being compressed from both sides: customers are faster and more informed, and competitors can produce launch assets faster than ever. That does not mean every launch should be rushed. It means the roadmap must be redesigned so learning and distribution readiness happen earlier, and the system can adapt without adding overhead. For low-differentiated products, the winning move is to shorten the time between first market signal and market presence, then iterate based on sell-through reality. AI can help you move faster. Only disciplined go-to-market systems will help you move correctly.