Discount agreements typically specify which products, locations, and transaction types are included. For example, purchases delivered directly to the site may be excluded from discount income eligibility. In complex channel environments or when selling to large customers, a supplier can benefit from several types of discounts on each transaction. The best practice is to pay discounts not on the price charged, but on the pocket price. An incentive discount is a discount like any other. A $1 discount invested in a discount has implications that can be quantified in terms of volume, mix, or retention benefit. This can and should be quantified so that the effectiveness of the discount can be compared. From a waterfall construction perspective, that $50,000, while certainly an off-bill discount, is not a discount. This type of co-marketing spend would be reflected in another uninflated cascade element. The attribution of this type of ”corruption” program is not trivial and will be dealt with in another document.
Shipping and debit discounts are a special use case. These are discounts because they represent an off-invoice discount that camouflages the actual price, but shipping and debit discounts are associated with a sale through a warehouse reseller. Thus, if the total amount of sales were 600 units, the buyer would be entitled to a discount of £4.00 per unit or 600 x £4.00 = £2,400. This is an attractive incentive that could have prompted the buyer to buy about 100 additional units to reach the next level. If the buyer had only bought 490 units, the discount earned would have been much smaller – 490 x £2.00 = £980. Align the entire channel or targeted programs with specific segments to increase revenue both strategically and tactically. Take advantage of volume incentive discounts and watch your market share grow. In these ”over-promised volume” situations, it is unlikely that the seller will be able to retroactively change the customer`s price. And because the realized price does not correspond to the quantity sold, the customer has indeed extracted a non-compliant price.
For Six Sigma practitioners, this is called a defect. And the defect cost the seller money. A customer discount program is used to limit the gap between the promised behavior and the actual behavior. At the end of the agreed period, the supplier then measures the customer`s actual purchases and grants a quantity discount that corresponds to the volume-based calculation shown in the table below. Tie volume incentive rebates are eligible for completion of certain supplier authorization programs. Instead, the supplier charges at a nominal price and then uses discounts to reduce the customer`s price to the agreed net price. In this case, discounts are an effective way to indicate a low net price while charging at a higher price. The provider acknowledges that rumors of low net prices are one thing, but a low price on a bill is the kind of evidence that can move the markets.
Indirect customer discounts are an effective tool for maintaining a strategic sourcing relationship with an end user and achieving mix and volume goals even if there is no billing relationship. In most cases, indirect discounts to customers come in the form of a cheque rather than a credit note, which would be the case if there is a billing relationship. The operation of ”national accounts” is often associated with remittances of this type. In many cases, a manufacturer may have discounts on volume, mix, and growth with the merchant and volume discounts with the end user, paying shipping and debit claims for the same transactions. The net price of these sales would be calculated minus ALL discounts. A volume discount program should be designed to encourage larger purchases in specific product lines. The incentive you offer basically means that the more volume the buyer buys during the transaction, the better the unit price they receive. This strategy has a number of advantages.
Each step of this volume discount activity could correspond to the achievement of certain discount rates per unit, for example: suppliers must review their discount strategy and set targets first. What behavior do you want to adopt for each channel, customer or segment? For each behavior that you want, specify the type of delivery to use. Providers can create a number of discount templates: a discount playbook to reduce complexity while ensuring that the right discount is applied to the right customer target. In addition to protecting against excessive promises, a volume discount program can also promote customer loyalty and retention. Volume incentive discounts commit buyers in the long run – since they don`t receive the discount until they`ve passed the volume threshold, the discount incentivizes them to keep buying until they do. A volume discount program resolves this issue immediately. With a discount programme, instead of giving the discount in advance, the buyer pays the total price of £100 per unit purchased and receives the discount retroactively – as a discount – only when they have exceeded the volume threshold for the purchase of 1,000 units. This protects you as a seller from overly promising buyers and instead rewards customers for their actual rather than ”promised” behavior.
In other words, your volume incentive discount program still ensures that buyers can access a better unit price than list price – which adds fuel to your sales and marketing strategy and encourages a higher volume of purchases – but the risk of non-compliance lies with them. Discounts are used to evaluate ”actual” and not ”promised” purchases, instead of giving a discount in advance and taking responsibility for verifying sales to the customer, or worse, not auditing, the seller grants a discount only for the actual volume, thus transferring the risk of non-compliance to the buyer. This is where discount management software comes in. Discount management software solutions allow B2B organizations to quickly and easily implement many types of discounts and structure them individually for different buyers. .
