Rewarding Terms
How do you reward customers with trading terms that better reflect the value they add to your business as multi-channel trading becomes more prevalent? We look at how two different companies were helped to implement a new approach
Scenario
Your business operates a simple tiered customer discount mechanism based upon annual turnover with the largest customers enjoying the best trading terms.
Your premium brand reputation has been built over many years based upon providing consumers with best in class products, sales advice, demonstration and after sales service. However you rely upon your smaller specialist retailers to provide this premium service but an increasing number are less prepared to invest in the time, the effort, the recruitment and training of expert staff, the demonstration stock and appropriate premises and facilities to provide it. You start to hear comments like:
In these situations, there is a real risk of losing these valuable customers.
Solutions
Dealing with problems like this on a case by case basis will not solve the root cause. The terms package offered to all customers needs to be addressed.
A number of solutions can be applied in these circumstances but they generally revolve around two trading styles:
- Selective Distribution Criteria where objective value-adding criteria are set which customers must meet in order to access the brand or elements of a brand's offer. Once the criteria are implemented they must be applied consistently to all customers
- Conditional Terms where the level of terms (discounts, rebates, marketing support etc) are determined by the extent a customer meets a set of defined conditions. Often these are based around criteria that compliment your brand values e.g. the degree of investment in dedicated demonstration space or the number of qualified technicians fully trained to support your products
One business faced just this situation with one of its premium brands. The solution is a mix of approaches consisting of four areas:
- Basic Criteria the customer must meet to secure access to the brand giving the customer a trading account with a base trade discount
- Turnover Criteria to ensure the customer is committed to delivering a reasonable level of business to the brand and provides an additional discount. The turnover threshold varies by channel
- Brand Commitment Criteria the customer must meet to secure the largest element of the final trade discount. These criteria vary to meet the brand's value-adding requirements of each channel in which it operates.
- Growth Rebates offered to selected customers based upon their business potential
A different arrangement was implemented for one mass-market company where selective distribution criterion was not appropriate.
Here points are allocated to a wide number of criteria covering every trade channel with the points weighted to reflect the level of investment made by the customer and the degree of added value it delivers to the brand. The total points are then mapped against a table of discount bands.
In each example the process and result are the same.
A pro-forma is completed for each customer identifying which criteria the customer meets and the final discount the customer receives. Should individual customer circumstances change, their pro-forma is updated and revised terms confirmed. The whole process is typically repeated each year to ensure trade terms match changed market circumstances.
Benefits
The process removes all subjectivity and ensures a level playing field based upon the provision of brand added value. It is also a very visible process so customers know that they are being measured in the same consistent way and are therefore rewarded more fairly.
This type of terms structure can deliver major benefits to brand loyalty in particular. If you would like to know how it might be applied to your business, please contact us.