Discountmanagementfina;

1. Discount Management

2. Ground rules
2

3. Personal development focus
• When managing discounts, what
do you consider to be your
strengths?
• Which aspects of discount
management do you find most
challenging?
• If you could improve three
elements of your discount
management, what would these
be?
3

4. Workshop outcomes
• Explore the aims of discounts and trade investment
• Know how these discounts translate into Net Trade
Price
• Understand the importance of making discounts
conditional
• Identify what could be incentivized through discounts
offered
• Understand the key discount types and the
principles to follow when managing them
4

5. 5
 Current Discounts by Competition.
 Lack of Negotiation Skills.
 Role of Distributor.
 Not Conditional with Company Benefits.
 Wrong Forecasting / Estimation of Volume
 Trans-Shipment Factors
 Trade Pressure to Reap high Discounts.
Traditional Approach

6. 6
 Accurate Volume Projections.
 Discounts on VPO basis.
 Conditional Agreements/Selling with other benefits.
 Stronger Negotiation Skills.
 Profitability.
 Understanding of Contribution Margin while Negotiation.
Best Approach

7. Future sales of an outlet are determined by dividing monthly
sales of that outlet by seasonality curve.
Daily sale x Days of specific month
Seasonality Factor of the specific Month
Volume Projection

8. 3%
6%
10%
12%
12%
13%
11% 11%
8%
8%
4%
2%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
SEASONALITY
Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonality 3% 6% 10% 12% 12% 13% 11% 11% 8% 8% 4% 2%
Sales Forecast

9. VPO Classification
9

10. Retail Level Negotiation
10

11. Bonus Tip

12. Workshop roadmap
NWSP
13
2
12

13. NWSP
13
2
1. Purpose & Philosophy
• The aims of trade spend
• Translating spend into
rationalized spent
13

14. The aims of trade spend
Reward scale and drive profitable growth
• Make the trading relationship conditional
• If you do, then you get
• If you don’t, then you don’t get
Encourage greater levels of collaboration
• Make PepsiCo attractive versus the competition
• Balance Sheet Trick
Improve outlet disciplines
• Incentivise distribution and availability
• Incentivise improved in-store execution
Drive cost-to-serve efficiencies
14

15. Translating spend into NTP (a simple example)
/ 5000 cases Discount
per case
Rs.
105,000
Rs.
21
-Rs.
21
Rs.
450
Rs.
429
Retail Price Net Trade Price
Signange
Volume
Incentive
Chillers
Total customer
investment
Rs.
105,000
Rs.
40,000
Rs.
5000
Rs.
60,000
15

16. Just so we are clear…
• The aim of trade spend and
discounts is to incentivise and
reward profitable growth,
encourage collaboration, improve
outlet disciplines and drive
efficiencies.
• Net Trade Price (NSP) represents
the net price offered to
customers after all discounts have
been subtracted.
NWSP
13
2
16

17. 2. Incentivising Performance
• Conditional and
unconditional payments
• What might be incentivised
NWSP
13
2
17

18. Conditional and unconditional payments
Conditional payments
• Payments are based on performance
• Payment is withheld if performance is not met
Pay for what you get and get what you pay for!
Unconditional payments
• A payment to the customer in order to be in business with
them
• Avoid this type of agreement
18

19. Make payments conditional
• Make Net Trade Price conditional
• Make discounts and trade spend conditional
• Translate payments into a net trade price
(price minus average spend per case = NTP)
• Get the right return for the funds invested
• Track and measure performance
• Withdraw funds if requirements are not met
• Be consistent across ALL customers
Pay for what you get and get what you pay for!
19

20. What might be incentivised
Scale and growth
• Scale / size of customer
• Volume growth
Outlet disciplines
• Brands and packages stocked
• On shelf availability
• Main fixture space
• Secondary display space
• Compliance to planograms
• Compliance to agreed activity
Collaboration
• Exclusivity
• Support for marketing activity
Cost to serve efficiencies
• Prompt / early payment
• Delivery efficiencies
• Driver waiting time
20

21. Just so we are clear…
• Make payments conditional. Base
discounts on performance and
withhold them if criteria are not
met.
• Track, measure and review
performance regularly. Keep the
customer on track and get the
right return on your investment.
• Consider what aspects of
performance should improve and
build incentives around these
areas.
NWSP
13
2
21

22. 3. Discount Types
• Discount types defined
• Upfront payments
• Card accounts
• Trade schemes
NWSP
13
2
22

23. Discount types defined
Advance Payments
• Lump-sum payments, made to important customers in
exchange for business benefits, typically Pepsi
exclusivity.
Periodic Discounts
• High volume customers, given permanent fixed
discounts per case, in exchange for business benefits,
typically a volume commitment.
Trade Schemes
• Variable schemes offered for short periods across the
market, in exchange for improved performance, e.g.
increased orders for specified SKUs, or market share
protection / improvement.
23

24. Advance payments
Ideally, advance payments should be avoided
However, if they are unavoidable, then you should
consider:
• Trustworthiness of the customer:
Upfront payments should only be given to 100% trustworthy
customers
• Spread payments:
Avoid making the entire payment upfront
(make quarterly or mid-term and end of term payments)
• Link payments to volume:
Link payment to volume achievements
• Fix rates:
Fix individual rates by SKU
• Alignment and agreement:
Ensure all points are negotiated and agreed upon
Ensure all conditions are clearly spelt out in a written
agreement
24

25. Periodic Discount
Discounts awarded on achievement of volume targets
(if the target is not achieved then the discount should be withheld)
Evaluate the SKU mix:
• Determine which SKUs the discounts apply to
• Discounts should vary by SKU and should be linked to MC
• Odd discounting can be done
Determine payment approach:
• % discount or rate per case
• If prices are rising, a rate per case is preferable (and vice versa)
• Frequency and method of payment (every bill versus end of month)
Alignment and agreement:
• Ensure all points are negotiated and agreed upon
• Ensure all conditions are clearly spelt out in a written agreement
25

26. Trade schemes
Offer trade promos that achieve your objectives:
• Be clear about your goals
• Offer trade schemes that help you achieve those goals
SKU relevance:
• Determine which packs to feature
(scheming on all packs reduces the effectiveness)
• Which packs / brands could be given as free product?
(get penetration for slow moving packs)
Pitch trade schemes at the right level:
• Rich enough to incentivise volume uplifts and share gain
• Not so rich that it disturbs or destabilises the market
Run trade schemes in bursts:
• Constant schemes can reduce overall effectiveness
26

27. Just so we are clear…
• Only offer discounts and trade
spend in exchange for business
benefits.
• Whenever possible, avoid offering
customers up front payments.
• Incentivise high volume customers
with fixed discounts per case.
• Offer trade schemes that
incentivise performance of target
SKUs and achieve specific
objectives.
NWSP
13
2
27

28. Finally …
• Discounts and a competitive NWSP
should incentivise profitable
growth.
• Make payments conditional. Base
discounts on performance and
withhold them if criteria are not
met.
• Use and manage discount types
appropriately:
• Advance payments
• Periodic accounts
• Trade Promos
NWSP
13
2
28

29. 29
How can outlets be activated?
PITA – Profit Creation
Model

30. 30
PITA – Profit Creation Model
Gross
Profit (Rs)
Population Incidence
Transaction
Size (liter)
Average
Profit
(Rs per liter)= x x
Number of
shoppers or
consumers in
given universe
% of
Population
that buy our
product
Amount in
volume
bought per
transaction
Amount of
Profit in
value per Ltr
Encourage
Shoppers to
buy
Encourage
Shoppers
to buy
additional
products and
packages
Encourage
Shoppers
to purchase
a variety of
high margin
products and
packages
Encourage
Shoppers
to buy more
often
x

31. 31
Gross
Profit (Rs)
Population Incidence
Transaction
Size (liter)
Average
Profit
(Rs per liter)= x x
Number of
shoppers or
consumers in
given universe
% of
Population
that buy our
product
Amount in
volume
bought per
transaction
Amount of
Profit in
value per Ltr
Place equipment &
POS material at
the entrance to
attract attention
Ensure cooler
purity and outlet
activation to
generate impulse
Ensure Product
Matrix and
activation
standards
Ensure
availability of
profitable
packs
How to increase P I T A?
x

32. 32
Gross
Profit (Rs)
Population
(Traffic)
Incidence
Transaction
Size (Ltr)
Average
Profit
(Rs per Ltr)= x x x
Cooler at the
entrance
Cooler in
prime position
Combo Boards
Cooler in
prime position
Cooler pure
and clean
Rack Display
Rack Display
Standee, Sign
at the
entrance
Combo Boards
at the
entrance
More focus on
250ml
1000ml RGB
availability
Shelf Display
Counter Top
Display
Cooler Top
Display
More
Convenience
Packs
availability
PITA Model

33. 33
How to Activate an Outlet?
Gross
Profit (Rs)
Population
(Traffic)
Incidence
Transaction
Size (Ltr)
Average
Profit
(Rs per Ltr)= x x x
Entry Zone
Activation
Decision Making /
Consumption Zone
Activation
PITA Model - Profit Growth through Outlet Activation

34. 34
Driving Population to Gross Profit
Gross ProfitAverage
Profit
Transaction
size
IncidencePopulation
500 10% 10 Rs.500X =1XX
Gross ProfitIncidencePopulation
650 10% 10 Rs.650X =1XX
30%
Average
Profit
Transaction
size
30%

35. 35
Population Drivers
 Cooler
 Display Racks / Stands
 Standees
 Flange
 Newspaper Ads

36. 36
Driving Incidence to Gross Profit
Gross ProfitAverage
Profit
Transaction
size
IncidencePopulation
500 10% 10 Rs 500X =1XX
Gross ProfitIncidencePopulation
500 20% 10 Rs 1000X =1XX
Average
Profit
Transaction
size
100% 100%

37. 37
Incidence Drivers
 Cooler Position
 Display Racks
 Price Communication
 In-Shop Shelf Display
 Combo Boards

38. 38
Driving Transaction Size to Gross Profit
Gross ProfitAverage
Profit
Transaction
size
IncidencePopulation
500 10% 10 Rs 500X =1XX
Gross ProfitIncidencePopulation
500 10% 13 Rs 650X =1XX
Average
Profit
Transaction
size
30% 30%

39. 39
Transaction Size Drivers
 Cooler Top Display
 Cooler in Prime Position
 Display Racks
 More Convenience Packs

40. 40
Driving Average Profit to Gross Profit
Gross ProfitAverage
Profit
Transaction
size
IncidencePopulation
500 10% 10 Rs 500X =1XX
Gross ProfitIncidencePopulation
500 10% 10 Rs 625X =1.25XX
Average
Profit
Transaction
size
25% 25%

41. 41
Exercise
Current
Proposed
Increased Revenue and Profit for the Outlet ?
2,500 22% Rs 10 Rs264,000 20% Rs52,800X = X =48XX
Traffic / week Incidence Amount Total Revenue % Margin ProfitWeeks / year
2,500 32% Rs 10 Rs ………. 20% Rs ………X = X =48XX
Traffic / week Incidence Amount Rs Total Revenue % Margin ProfitWeeks / year
Rs ………. Rs ……….
ProfitTotal Revenue
….%
% increase

42. 42
Answer
Current
Proposed
Increased Revenue and Profit for the Outlet …
2,500 22% Rs.10 Rs264,000 20% Rs52,800X = X =48XX
Traffic / week Incidence Amount Total Revenue % Margin ProfitWeeks / year
2,500 32% Rs.10 Rs384,000 20% Rs76,800X = X =48XX
Traffic / week Incidence Amount Rs Total Revenue % Margin ProfitWeeks / year
Rs120,000 Rs24,000
ProfitTotal Revenue
45%
% increase

43. 43
Discussion
What is better ?
Discounts or Activation ?

44. Mastery quiz
# Question Answer
1 What does NWSP mean? Net Wholesale Price
2
What are the key aims of discounts and trade
investment?
Scale and profitable growth
Collaboration
Outlet disciplines
Drive efficiencies
3 How do you arrive at NWSP?
Calculate total investment
Calculate discount per case
Subtract this from list price to arrive
at NWSP
4 What is a conditional payment?
Payment to customer based on their
performance
5
What is an unconditional payment and what advice
would you offer in terms of when to use it?
Payment to the customer in order to
be in business with them. Avoid this
type of agreement
44

45. Mastery quiz
# Question Answer
6
In terms of volume, what are the 2 key things that you
might reward or incentivise through discounts offered?
Size or scale Volume growth
7
In terms of outlet disciplines, list 3 key things that you
might reward or incentivise through discounts offered?
Range stocked, availability, fixture
and displays and compliance to
planograms and agreed activity
8 What are upfront payments?
Lump-sum payments, made to
important customers in exchange for
business benefits, typically Pepsi
exclusivity
9 What are card accounts?
High volume customers, given fixed
discounts per case, in exchange for
business benefits, typically a volume
commitment
10 What are trade schemes?
Short term offers designed to
improve performance, e.g. increased
orders for specific SKUs
45