Move guide
Make every giveaway buy something
Your report suggested a move on at least one of these two practices:
- whether rebates and terms buy anything;
- whether quotes and contracts protect margin when costs move.
Money handed back to customers should pay for something you want: growth, a better mix, bigger orders. Contracts should protect margin when your costs rise. This move guide rebuilds the biggest rebate and retires the dead terms. It also puts a validity period and a cost clause in your paperwork.
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 either practice in the lowest two stages.
| Practice | Where it may sit today | Where this move guide aims |
|---|---|---|
| Whether rebates and terms buy anything | Lagging: "Rebates and settlement terms are historical entitlements no one can explain, let alone remove." Basic: "Terms are documented, but they pay out regardless of customer behaviour." |
Competent: "Major rebates pay for behaviour we want more of (growth, mix, order size, compliance), not for size alone." |
| Whether quotes and contracts protect margin when costs move | Lagging: "Quotes have no expiry and contracts have no cost clause, so a cost rise is absorbed until the next renewal." Basic: "Some contracts carry an escalation clause, written by whoever drafted that deal, and nobody knows which ones." |
Competent: "Standard quotes carry a validity period and standard contracts a cost pass-through clause, and both are used." |
If both already sit at the middle stage or higher, skip this move guide.
It works best after seeing where the price goes, which shows what each rebate and term costs.
2. What to do
Six steps. The audit takes about four weeks. The changes land at each renewal over the next twelve months.
- List every rebate, allowance and term. For each, write the behaviour it should buy and what it pays for today. Rate it. The rebates-terms worksheet does this.
- Rebuild the biggest rebate at its next renegotiation. Make it pay for measured behaviour, such as growth above last year or a better mix. Retire one dead term at the same time.
- Check the behaviour before you pay. No rebate is paid until the condition it pays for is measured.
- Put a validity period on every quote and a cost clause in the standard contract. The clause passes a cost rise through to price. Have a lawyer check it against the unfair contract terms law. A small-business customer who will not accept a change should be free to leave.
- List the live contracts without a clause. Fix each at renewal. Put the renewals on one calendar, with tenders included. Table A below does this.
- Charge for the orders that lose money. Where costing the customer showed small orders lose money, set a charge and enforce it.
The two free worksheets do the recording:
- /worksheets/pricing-b2b/rebates-terms for the list of rebates and terms, their ratings and the rebuild;
- /worksheets/pricing-b2b/contract-terms-pass-through for the quote, the clause and the contracts without one.
The rebate payback calculator shows whether a volume rebate buys volume or pays for volume you had anyway.
3. What to produce
One table, plus the two worksheets above.
Table A. The renewal calendar
| Customer | Renewal or tender date | Rebate to rebuild | Condition it will pay for | Dead term to retire | Cost clause in place? | Owner |
|---|---|---|---|---|---|---|
Put the next twelve months of renewals in date order. The pricing forum reviews the next quarter's renewals each month.
4. A worked example
Illustrative. Written for this move guide. It describes no client.
A specialty chemicals distributor sells to about 800 manufacturers.
The list.
- Fourteen customers had volume rebates. Each was paid on total annual purchases, including volume they would have bought anyway.
- One allowance dated from a merger ten years earlier. Nobody could say what it was for.
- Quotes had no expiry date, and most contracts had no cost clause.
The rebuild.
- At its renewal, the biggest rebate changed to pay only on growth above the previous year's volume, plus a condition on product mix.
- The merger allowance was retired at the same meeting.
- Quotes now carry a 30-day validity period. The standard contract carries a clause tied to a published index of input costs, checked by a lawyer.
The renewal calendar.
- Forty of the 120 live contracts had no clause. Each went onto the calendar with its renewal date and an owner.
Three months on.
- Two renewals had closed under the new terms.
- Rebates were paid only after finance checked the growth they paid for.
On a retake, both practices could be answered at the middle stage.
What it looked like in our work
From our own work. Figures changed.
A consumer business measured its biggest price promotions. For each, it set the extra turnover the promotion needed to break even beside the extra turnover it delivered.
| Promotion | Growth needed to break even (%) | Growth delivered (%) |
|---|---|---|
| Promotion A | 130 | 12 |
| Promotion B | 130 | 9 |
| Promotion C | 95 | 6 |
| Promotion D | 540 | 25 |
| Promotion E | 540 | 55 |
| Promotion F | 40 | 4 |
None came close. The growth each promotion needed was many times the growth it delivered.
A settlement discount, current against proposed
From our own work. Figures changed.
A distributor of business supplies paid one large discount for paying within 15 days, and nothing for 30 or 60 days. The proposal spread a smaller discount across all three.
| Payment term | Current discount (%) | Proposed discount (%) | Share of sales paid on this term (%) | Share of customers on this term (%) |
|---|---|---|---|---|
| 15 days | 2.5 | 0.8 | 70 | 25 |
| 30 days | 0 | 0.55 | 28 | 55 |
| 60 days | 0 | 0.3 | 2 | 20 |
| 90 days | 0 | 0 | 0 | 0 |
A quarter of customers held most of the sales and already paid fast. The new scheme cost less and gave the slower payers a reason to pay sooner. Expect some fast payers to slow down when the large discount goes.
Large and small customers respond differently
From our own work. Figures changed.
For one product, we set volume against unit price for large and for small customers. Small customers cut back at a lower price than large ones did.
| Unit price, per kg | Volume (index) |
|---|---|
| $0.3 | 100 |
| $0.35 | 96 |
| $0.39999999999999997 | 88 |
| $0.44999999999999996 | 60 |
| $0.5 | 30 |
| $0.55 | 15 |
| $0.6 | 10 |
| Unit price, per kg | Volume (index) |
|---|---|
| $0.3 | 100 |
| $0.35 | 70 |
| $0.39999999999999997 | 40 |
| $0.44999999999999996 | 22 |
| $0.5 | 14 |
| $0.55 | 10 |
| $0.6 | 8 |
Volume indexed to 100 at the lowest price.
A discount to win volume pays only where volume responds. Here, a small cut wins back small customers. Large ones need a bigger cut before they buy more.
5. Effort and dependencies
- Pricing ownerRuns it, with finance and the key account managers.
- LawyerChecks the quote terms and the clause.
- FinanceChecks each condition before a rebate is paid.
What you need
- Every rebate agreement and term, with what each paid last year.
- A list of live contracts with their renewal dates.
How long
- About four weeks for the audit and the paperwork.
- Then each renewal over the next twelve months.
What gets in the way. We have seen these in our own work:
- Rebates that reward the past. A building-products business in our own process notes paid rebates on total sales, with no extra reward for a bigger share.
- Conditions nobody can count. A beverages business carried so many pricing conditions that its rebates were reconciled by hand.
- Renewals left to run. A food processor did not manage its tender renewals.
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 what the next renewals contain. Retake the check after the first two renewals have closed. Each of these should be true when you answer:
| Practice | You can answer Competent when | A document alone does not count if |
|---|---|---|
| Whether rebates and terms buy anything | Your major rebates pay for a behaviour you can measure, and each is checked before it is paid. | The new terms are written, but the old rebate was renewed unchanged. |
| Whether quotes and contracts protect margin when costs move | Standard quotes carry a validity period, the standard contract carries a cost clause, and both have been used. | The clause sits in the template, but no contract signed since carries it. |
For consumer businesses
This section is for the B2C Consumer Pricing Health Check. Here the giveaways are promotions and markdowns. Each one should have a job and a measured result.
When it applies
Use it if your report placed any of these practices in the lowest two stages. Markdowns apply only if you hold stock.
| Practice | Where it may sit today | Where this move guide aims |
|---|---|---|
| How promotions are planned | Lagging: "Promotions run because they ran last year or because trade was slow that week." Basic: "A promo calendar exists but each event's job (traffic, clearance, loyalty) is unstated." |
Competent: "Each promotion has a stated objective, a forecast and an owner." |
| Whether promotions are measured | Lagging: "A promotion that sold lots is called a success, whatever it cost." Basic: "Sales during the promo are compared to the weeks before, and margin given away is not counted." |
Competent: "Incremental sales and margin are estimated against a baseline for major events, and clear losers are killed." |
| How markdowns and clearance are run | Lagging: "Stock is marked down when someone finally notices it, usually too deep and too late." Basic: "Markdowns follow a fixed schedule regardless of how each line is actually selling." |
Competent: "Markdown timing and depth respond to sell-through against plan, with clearance targets." |
If your report gave the foundation moves, start measuring your five biggest promotions in the same weeks as building one source of pricing data.
What to do
- Measure your five biggest promotions against a baseline. For each, count:
- the uplift;
- the sales taken from other lines;
- the sales pulled forward from later weeks;
- the supplier funding and the margin.
- Work out the uplift each one needed to break even. Compare it with what it delivered. The promotion payback calculator does the sum.
- Stop the clear losers.
- Give every promotion next quarter a job before it runs. The job is traffic, clearance or loyalty. Each one also gets a forecast and an owner.
- If you hold stock, tie markdowns to sell-through. Track sell-through against plan weekly by line. Set clearance targets, and drop the fixed markdown calendar.
The three free worksheets do the recording:
- /worksheets/pricing-b2c-direct/promo-measurement for the five promotions;
- /worksheets/pricing-b2c-direct/promo-planning for next quarter's jobs, forecasts and owners;
- /worksheets/pricing-b2c-direct/markdowns for the plan and the weekly sell-through check.
What to produce
Table B. Keep, change or stop
| Promotion | Job | Uplift needed to break even (%) | Uplift delivered (%) | Decision: keep, change or stop | Owner for next time |
|---|---|---|---|---|---|
A worked example
Illustrative. Written for this move guide. It describes no client.
A specialty food retailer sells through 30 stores and a website.
- Its five biggest promotions were measured against a baseline.
- Two lost margin once sales taken from other lines were counted. Both were stopped.
- A third was kept at a shallower discount.
- Next quarter's eight promotions each had a job, a forecast and an owner before they ran.
- Seasonal hampers had been marked down on a fixed date. They now followed weekly sell-through against plan, with a clearance target.
On a retake, all three practices could be answered at the middle stage.
Effort and dependencies
- Who. Marketing owns the promotions. Finance measures them. Merchandising or buying owns the markdowns.
- What you need. Weekly sales by product for the promotion weeks and the weeks around them, the promotion's funding, and the stock plan by line.
- How long. About six weeks to measure the five biggest promotions. Then plan next quarter under the new rules.
- What gets in the way. We have seen promotions run into demand that does not respond. A consumer business's promotions needed far more extra turnover to break even than they delivered.
What we have seen. "Promotions are where consumer margin quietly dies: in one review we ran, four in five promotions at the largest retailer reduced gross margin, and three lost money outright." We have seen this in our own work. It is not a forecast for yours.
How will you know it worked?
| Practice | You can answer Competent when | A document alone does not count if |
|---|---|---|
| How promotions are planned | Every promotion next quarter has a stated job, a forecast and an owner before it runs. | The calendar lists promotions with no job against them. |
| Whether promotions are measured | Your major promotions are measured against a baseline for their extra sales and margin, and the clear losers have stopped. | The results are measured, but the losers still run. |
| How markdowns and clearance are run | Markdown timing and depth follow each line's sell-through against plan, with clearance targets. | The markdowns still run on the fixed calendar. |
For brands selling through retailers
This section is for the B2C via trade Brand Pricing Health Check. For a brand, the giveaways are trade spend: the money you pay retailers and distributors in terms, rebates and promotions. Each dollar should pay for something the retailer does. The section has two parts, terms and promotions.
When it applies
Use it if your report placed any of these practices in the lowest two stages. Distributor terms apply only if you sell through wholesalers or distributors.
| Practice | Where it may sit today | Where this move guide aims |
|---|---|---|
| Whether trade terms are conditional on what the retailer does | Lagging: "Terms are whatever each customer negotiated, paid regardless of performance, and they have never gone down." Basic: "Some terms are labelled for growth or display, but they are paid anyway." |
Competent: "Every term is named as passive or active, and new money goes only into active terms with a stated condition." |
| How the trade budget is set and shared across accounts and products | Lagging: "Last year's spend plus growth, held by the account manager who spends it where the buyer asks, or, for a newer brand, whatever was on the retailer's terms sheet because we wanted the listing." Basic: "A top-down percentage of sales for the channel, not broken down to accounts." |
Competent: "Trade and promotional budgets are set by account and by product with a target rate, and the biggest accounts have a product-level plan." |
| Whether spend to wholesalers and distributors buys sell-out, not sell-in | Lagging: "We pay distributors to load up before a promotion (or pay price support to hold an end-user price) and pay the retailer again on the same cases, and cannot see what reached the shelf." Basic: "We know loading happens and manage the demand spike afterwards." |
Competent: "Distributor terms separate the logistics service we buy (a handling or inventory allowance) from any pull spend, and we get sell-out data in return for the pull." |
| Whether the annual terms negotiation is ours to run | Lagging: "The retailer opens the negotiation, we defend, and terms only ever go up." Basic: "We prepare a summary of the account's performance the week before." |
Competent: "A fact base for each major account (our economics, their economics, category performance, the competitors' position) sets objectives, tradeables and a walk-away before the first meeting." |
| Whether promotions follow a calendar and written guidelines | Lagging: "Promotions are last year's, or the retailer's calendar, agreed deal by deal at whatever depth the buyer asks." Basic: "A calendar exists for each account, but two accounts promoted the same product the same week and nobody knew." |
Competent: "Written guidelines set maximum depth, frequency and weeks on promotion per brand, and one clash calendar covers all accounts." |
| Whether every promotion is evaluated afterwards and the result changes the next plan | Lagging: "Nobody measures a promotion; volume on deal is the proof." Basic: "We track what the retailer ordered for the deal, not what sold through or what happened the week after." |
Competent: "Sell-out uplift, stock-up and what it took from our other products are estimated for major promotions with a standard tool, and the losers are stopped." |
What to do: terms
- Label every term in your biggest agreement passive or active. An active term pays for something the retailer does, such as growth, display or range. A passive term pays regardless.
- Put new money only into active terms with a written condition. Let one passive term expire at the next round.
- Set trade-spend rate targets. Trade-spend rate is your trade spend as a share of gross sales. Set a target by account for your top ten, and by product for your top twenty.
- Build next year's budget from those targets before the retailer's request arrives.
- If you sell through distributors, split what you pay them in two. One part buys the logistics service. The other is pull spend, paid only in return for sell-out data you can see.
- Prepare the next terms round on facts. For your biggest account, build the fact base: your economics, theirs, category performance and the competitors. Write your objectives, what you can trade and your walk-away. If they are one of the four large grocers, know your Grocery Code rights before you sit down.
What to do: promotions
- Write promotion guidelines for your top brands. Set the maximum depth, the frequency and the weeks on deal.
- Put every account's promotions on one calendar, so a clash shows before it happens.
- Run a post-evaluation of your ten biggest promotions of last year. Count the sell-out uplift, the dip in the weeks after, what it took from your other products and what it cost. The promotion payback calculator does the sum. Drop the ones that did not pay.
The six free worksheets do the recording:
- /worksheets/pricing-consumer-trade/terms-structure-pay-for-performance for labelling each term;
- /worksheets/pricing-consumer-trade/trade-spend-allocation for the rate targets and the budget;
- /worksheets/pricing-consumer-trade/distributor-terms for splitting distributor pay;
- /worksheets/pricing-consumer-trade/terms-negotiation-discipline for the fact base, the objectives and the walk-away;
- /worksheets/pricing-consumer-trade/promo-planning-and-guidelines for the guidelines and the clash calendar;
- /worksheets/pricing-consumer-trade/promo-roi-measurement for the post-evaluations.
What to produce
Table C. The terms round plan, biggest account
| Term | Passive or active | Condition it pays for | Cost last year ($) | This round: keep, add a condition, or let expire |
|---|---|---|---|---|
A worked example
Illustrative. Written for this move guide. It describes no client.
A snack food maker sells through the two big grocers, convenience and a national distributor.
Terms.
- Its biggest grocery agreement carried eleven terms. Seven were passive, including a "growth" allowance paid every year whether sales grew or not.
- At the next round, new money went only into a display term with a written condition, checked by store audit. One passive term expired.
- The distributor had been paid to load stock before each promotion, and the retailer was paid again on the same cases. The new terms paid a handling fee, plus pull spend in return for weekly sell-out data.
- Before the round, the team wrote a fact base, three objectives and a walk-away, and rehearsed the meeting.
Promotions.
- Guidelines set a maximum depth and a cap on weeks on deal for each brand.
- One calendar showed two accounts promoting the same product in the same week, and one was moved.
- Of last year's ten biggest promotions, three did not pay once the dip in the weeks after was counted. They came off this year's calendar.
On a retake, all six practices could be answered at the middle stage.
Effort and dependencies
- Who. The commercial manager runs it, with the account managers and finance. Marketing owns the promotion guidelines.
- What you need. Every agreement and what each term paid last year, scan data for the promotion weeks, and the distributor agreements.
- How long. Four to six weeks to prepare. The terms change at each annual round. The promotion guidelines apply from the next calendar.
- What gets in the way. A buyer's request that arrives before your budget is built. Set the rate targets early, so the request meets a plan.
What we have seen. "Making terms conditional and evaluating promotions is the fastest money. In one business we worked with, a fact base, written objectives for each meeting and rehearsed negotiations were worth more than $1m on about $13m of trade spend." We have seen this in our own work. It is not a forecast for yours.
How will you know it worked?
| Practice | You can answer Competent when | A document alone does not count if |
|---|---|---|
| Whether trade terms are conditional on what the retailer does | Every term is named passive or active, and new money goes only into active terms with a stated condition. | The terms are labelled, but the last round still added a passive term. |
| How the trade budget is set and shared across accounts and products | Trade budgets are set by account and product with a target rate, and the biggest accounts have a product-level plan. | The rates are set, but the budget was still last year plus growth. |
| What spend to wholesalers and distributors buys | Distributor terms separate the logistics service from pull spend, and you receive sell-out data in return for the pull. | The split is written, but no sell-out data has arrived. |
| Whether the annual terms negotiation is ours to run | Each major account has a fact base that sets objectives, what you can trade and a walk-away before the first meeting. | The fact base was written after the first meeting. |
| Whether promotions follow a calendar and written guidelines | Written guidelines set maximum depth, frequency and weeks on deal per brand, and one clash calendar covers all accounts. | The guidelines exist, but promotions are still agreed at whatever depth the buyer asks. |
| Whether every promotion is evaluated afterwards and the result changes the next plan | Major promotions are evaluated for sell-out uplift, stock-up and what they took from your other products, and the losers have stopped. | The results are measured, but the losers are back on this year's calendar. |
The worked examples are illustrative.
Think we've used your work without proper credit? Tell us and we'll fix it.