Take control of discounts and exceptions

Your report suggested a move on at least one of these three practices:

• who can give price away;
• what happens to exceptions;
• what guidance sales has in the moment of quoting.

They are one job, so this move guide takes them together. It sets the rules for giving price away, puts an end date on every exception, and gives sales a floor to quote against.

If you took the consumer check, go to the consumer section. If your products reach shoppers through retailers, go to the section for brands.

1. When it applies

Use this move guide if your report placed any of these three practices in the lowest two stages.

If all three already sit at the middle stage or higher, skip this move guide.

If your report gave the foundation moves, with 15 or more practices in the lowest two stages, do those first. Discount rules need a pricing owner and one source of price data to stand on.

2. What to do

Seven steps, in this order. Steps 1 to 6 take about four weeks. Step 7 runs from then on.

1. Pull last quarter's invoices. You need one line per invoice line: customer, product, quantity, list price, net price, salesperson, and the approver if anyone approved it.

2. See how far prices spread. For your 20 biggest products, set the lowest and highest unit price paid against the average. Mark the customers paying well below it. These are your outliers. Table A below does this.

3. Find the floor. For each product group, work out the price below which a deal no longer covers its variable cost and the cost of serving it. No approval band may go below this floor.

4. Write the discount ladder. For each role, record:

   • the most it may discount;
   • the deal size it covers;
   • who it escalates to.

   Keep every band above the floor. Table B below does this.

5. Record every approval. Every discount above the first rung is recorded with the person who approved it. An email is the minimum, and a verbal yes does not count.

6. Open the exception log and set the deal guidance.

   • Every price outside the ladder gets a reason, an owner and an expiry date, set no later than the customer's next renewal.
   • For your ten most common deal situations, set a target, a floor and a walk-away price. Put them where sales writes quotes.

7. Review it.

   • Each week, the pricing owner and the sales head spend 30 minutes on new exceptions and approvals above the second rung.
   • Each month, test 20 random deals against the ladder.
   • At each renewal, the exception either ends or is renewed on purpose.
   • Track realised price, the price you actually get after every discount, for the outlier customers each month.

The three free worksheets do the recording:

• /worksheets/pricing-b2b/discount-authority for the ladder and the monthly test;
• /worksheets/pricing-b2b/exceptions for the log;
• /worksheets/pricing-b2b/deal-guidance for the three prices.

3. What to produce

Two tables, plus the three worksheets above.

Table A. Price bands: the same product, different prices

Table B. Discount ladder

A band that lets a deal go below its product group's floor approves a loss. Move the band above the floor.

4. A worked example

Illustrative. Written for this move guide. It describes no client.

A building-supplies distributor sells about 400 products to 1,500 trade customers, through 30 reps in six branches.

What the invoices showed.

• Last quarter's invoices showed its best-selling sheet product sold at an average of $42 a sheet. The range was $31 to $49.
• Forty customers paid more than 10% below the average. Between them they took 22% of that product's volume.
• Only nine of those forty prices had an approver on record.

The floor.

• Variable cost plus delivery and handling came to $33 a sheet.
• Seven customers were paying less than that, so the business was losing money on every sheet it sold them.
• The floor for the product group was set at $34.

The ladder.

At a $46 list price, 15% off gives $39.10, which stays above the $34 floor.

The exception log.

• It opened with 26 standing special prices.
• Eleven had no reason anyone could find, and they were set to end at the customer's next renewal.
• Fifteen were kept with a reason, an owner and an expiry date.

Three months on.

• The monthly sample found 17 of 20 deals inside the ladder, and the three outside had approvals on record.
• The seven below-floor prices had been raised to the floor or had ended.
• The pricing owner was tracking realised price for the forty outlier customers each month.

On a retake, all three practices could be answered at the middle stage.

What it looked like in our work

From our own work. Figures changed.

An industrial distributor. We looked at what its largest trade customers paid for each product line, averaged across their biggest orders.

Every line carried a deep discount, between 37% and 54%. The two largest lines carried the smallest discounts. Lines that made up a few per cent of the order were discounted almost as deeply as the rest. The discount followed the customer, whatever the product.

This is the price-spread check in step 2 of what to do, run for one class of customer. It shows where a ladder set by product group would differ from one discount for everything.

The approval limit sat below breakeven

From our own work. Figures changed.

An agricultural equipment maker let its sales team discount down to a set gross margin without approval. The limit sat at half the margin a sale needed to break even on contribution.

The approval rule caught about one loss-making sale in twelve. The fix was to move the limit up to breakeven, so every sale below it gets a second look.

A discount ladder by customer level

From our own work. Figures changed.

A steel distributor set its discounts as a ladder for each product group. The largest project customers sat at the top. Then came ten customer levels, and cash customers at the bottom. Each level had a starting discount, and a sales rep could go only a few points deeper.

Each product group had its own ladder. Some were flat: about 15 points from the top project tier to cash. Others were steep, at about 36 points. The ladder set the starting point, and the band set how far a rep could move from it.

5. Effort and dependencies

What you need

• One quarter of invoice lines with list and net price.
• Variable cost by product group.
• A rough cost of serving each customer type (order size and delivery are enough to start).
• The list of standing special prices.

How long

• About four weeks to steps 1 to 6.
• Then 30 minutes a week, a monthly sample of 20 deals, and the renewal review.
• If the price data is not in one place yet, fix that first. It is a separate move in your report.

What gets in the way. We have seen these in our own work:

• Approval limits set below breakeven. At an equipment maker, the limit for approving a margin hold sat below contribution breakeven in two markets. The deals it approved eroded margin.
• Rules that differ by site. At an industrial distributor, each site had its own discount authority, and front-line staff priced off a local cost figure. A fix through a large data clean-up did not stick.
• Overlapping schemes. At a distribution business, five discount schemes nobody had lined up handed pricing power to the largest distributors.

What we have seen. "Fixing discounts, rebates and price support has added 2–3 points of margin, and quickly." We have seen this in our own work. It is not a forecast for yours.

6. How will you know it worked?

The test is how deals are priced once the rules are in place. Retake the check after three to six months. Each practice should then sit at the middle stage, and each of these should be true when you answer:

Realised price for the outlier customers is worth tracking, because it shows whether prices are converging. The test is still that the practices run as the Competent cells describe.

For consumer businesses

This section is for the B2C Consumer Pricing Health Check. The job is the same: price is given away by rule, by the right person, and on the record.

When it applies

Use it if your report placed the first two practices below in the lowest two stages, or the third at the middle stage.

Is how pricing decisions get made in the lowest two stages? Then start with naming the owner and setting the calendar. Measuring each leakage line every month is in seeing where the price goes. This move guide writes the rules.

What to do

1. Total last month's giveaways by line. Count vouchers, discount codes, staff discounts, price-matches and goodwill refunds. The leakage worksheet does this.
2. Write who may give what away. For each line, set who may give it, the most they may give, the condition and the expiry. Table C below does this.
3. Write the guardrails for routine price changes. Say what counts as routine, such as a move inside a category's price band or a promotion already on the calendar. Routine changes go ahead without a meeting.
4. Write what a non-routine change must attach. That means the reason, the expected effect on units and margin, and who decided.
5. Write the channel rules. For each product group, set one price across site, app, store and marketplaces, or write the reason for each difference.
6. Check every month. Report each leakage line against its rule. Compare the prices of 20 products across every channel, and fix any gap nobody chose.

The three free worksheets do the recording:

• /worksheets/pricing-b2c-direct/leakage for the month of giveaways and the rules;
• /worksheets/pricing-b2c-direct/price-integrity for the channel rules;
• /worksheets/pricing-b2c-direct/decision-discipline for the guardrails.

What to produce

Table C. Giveaway rules

A worked example

Illustrative. Written for this move guide. It describes no client.

A homewares retailer sells through 40 stores and a website.

What a month showed.

• Giveaways came to $310,000 on sales of $14m.
• Discount codes were the biggest line. One code meant for email subscribers had reached a coupon site.
• The website was cheaper than the stores on 120 of its 2,000 products, and nobody had chosen that.

The rules.

• Codes became single-use and expire after 14 days.
• Price-matches cover named competitors' in-stock items only. A store manager approves any match above $100.
• One price runs in every channel. Online clearance is the one stated exception.
• Category managers may move a price by up to 5% inside its band without a meeting. Anything else goes to the monthly forum with its analysis.

Three months on.

• Each giveaway line was reported monthly against its rule.
• The monthly channel check found six gaps, and all six were fixed in the month.
• The forum's agenda was exceptions and strategy.

On a retake, all three practices could be answered at the target stage.

Effort and dependencies

Who

• The pricing owner writes the rules with trading, e-commerce and store operations.
• Finance reports each giveaway line monthly.
• Store operations trains the staff who give refunds and price-matches.

What you need

• One month of giveaways by line.
• Current prices by channel for your main products.

How long

• About four weeks to write the rules and start the reporting.
• Then a monthly report and a monthly channel check.

What gets in the way

• Codes that travel. A code meant for one group of customers spreads to everyone. Make codes single-use or tie them to an account.
• Channels priced by different teams. The website and the stores each change prices on their own calendar. Put both on one repricing calendar.

How will you know it worked?

Retake the check after three to six months. Each of these should be true when you answer:

For brands selling through retailers

This section is for the B2C via trade Brand Pricing Health Check. Here price is given away through terms, promotions and one-off deals. The job is to put each one on the record, with the right approver, and to explain every price difference between customers.

When it applies

Use it if your report placed either practice in the lowest two stages.

What to do

1. Write the delegation of authority. It covers terms, promotions and one-off discounts. For each, say who may approve what, up to what limit. Table C below does this.
2. Log every deal outside the matrix with its reason and its approver.
3. Check the terms in the system against the signed agreements for your top twenty customers. Fix each term that has no agreement behind it.
4. Get written terms with any major customer that has none.
5. Plot net price against volume for one category. Name the customers who pay less than bigger, better customers, and put a date on each fix.

The two free worksheets do the recording:

• /worksheets/pricing-consumer-trade/decision-rights-and-controls for the delegation, the log and the check against signed agreements;
• /worksheets/pricing-consumer-trade/price-relativities-across-customers for the plot and the dated fixes.

What to produce

Table C. The delegation of authority

Write a limit in each cell, or leave it blank where that person may not approve.

A worked example

Illustrative. Written for this move guide. It describes no client.

A health foods brand sells through grocery, pharmacy and health food stores.

• Approvals for deals outside the matrix went by email and were deleted after two months.
• Its largest customer group had no written terms at all.
• The delegation of authority set limits for terms, promotions and one-off discounts.
• The check against signed agreements found fourteen terms in the system that no agreement supported. Each was stopped or written into the next agreement.
• The plot of net price against volume found two small pharmacy groups paying less than the biggest chain. Both fixes had dates.

On a retake, both practices could be answered at the middle stage.

Effort and dependencies

• Who. The commercial manager writes the delegation. Finance runs the check against agreements. The sales director signs off the fixes.
• What you need. The signed agreements for your top twenty customers, the terms loaded in the system, and net price by customer.
• How long. About four weeks to write the delegation and run the first check.
• What gets in the way. A customer who will not sign written terms. Agree what you will keep paying until they do.

What we have seen. "Written decision rights and aligned incentives stop the leak at source. In one business we worked with, getting that discipline in place brought trade spend down by two to three percentage points of sales." We have seen this in our own work. It is not a forecast for yours.

How will you know it worked?

The worked examples are illustrative.

Think we've used your work without proper credit? Tell us and we'll fix it.