The Discount Management Blueprint

20 November 2020

Background

A market leader in Waste Disposal Services was suffering from declining net sales per customer (Figure 1). Although the company had been experiencing overall growth, it was being achieved through acquisitions of smaller competitors. The multitude of acquisitions resulted in inconsistent customer pricing and discount structure.

The RML Approach

Define Discount Components

What are the components of discount investment?

Understand Drivers

What discount components truly drive profitability?

Structured Discount Terms

What is the right discount playbook for specific customers?

Execute, Monitor, Report & Adjust

What training is needed to create a sustainable change?

The Challenge

The discount structure for newly acquired companies varied greatly, resulting in inconsistent discounts being provided to similar, incumbent customers (Figure 2). Additionally, the client was taking substantial price increases, which led to customer complaints. Customers were regularly calling support staff and negotiating one-off discounts. Revenue Management Labs (RML) was brought in to investigate and implement a system with the twin objective of gaining control of discounts whilst increasing overall net sales.

1. Define Discount Components

Structured Pricing and Trade Terms (SPTT) are the foundation for a clear, standardized pricing framework for all customers. To develop this, you first need to have a consistent classification of trade spend that will create a foundation of pricing discounts and trade terms across each customer case. Through detailed working sessions with the client, the RML team outlined all the potential trade groups for the client as follows:

2. Understand Drivers

With a clear view of all client investments being made, the process transitioned to understanding the relative return on investment (Figure 3).

As shown in Figure 3, the success of discount types varied greatly. These insights were formalized in a discount playbook.

3. Structured Trade Terms

Implementing the discount playbook involved evaluating the value of each customer over their forecasted purchasing lifetime. Customer Lifetime Value (CLV) is the amount of revenue or profit a customer is expected to generate over his or her lifetime (Figure 4).

It was important to determine the CLV to accurately discount customers moving forward. This allowed streamlining of spend based on customers with the highest dollar value. Each customer had a blueprint of individually recommended discount types and depth (Figure 5).

4. Execute, Monitor, Report & Adjust

Revenue Management Labs worked with the company’s sales force and customer service team to deliver actionable strategies for implementing the structured trade terms. This meant creating a tool for identifying the successful discount types and applying the correct discount to each individual customer.

It was essential that the integrity of the discounting system be maintained moving forward. A model for incoming customers was implemented that automatically flagged the level of pricing allowed based on the incoming customers’ forecasted CLV.

The Result

+ 2.9% Net Sales

Following the project, the client experienced a 2.9% increase in Net Sales per customer year over year (Figure 6).