Don’t underestimate the importance of putting in place a considered discount structure, backed up with appropriate incentives, to deliver value for suppliers and their retailers, says Euan McGlashan director of consulting at Sellex.

Whether you are talking about traditional independent retailers with showrooms; members of buying groups taking advantage of the preferential buying and trading terms they offer; big-name players with widespread trade name recognition; or pureplay online retailers, all are facing their own, different challenges.

For many, the latter pose the biggest threat, with highly competitive prices, unburdened with the costs of bricks and mortar stores, causing many suppliers’ problems as they sit outside of their traditional pricing structures.

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Elsewhere, we are seeing private equity purchasing buying groups looking to expand their reach through attracting more independents, or luring customers from other buying groups to give themselves ever greater purchasing power.

Broken pricing structures

Pricing and discount structures have been broken thanks to necessary price increases.

Trading term investment frequently acts as a price discount rather than an incentive to grow sales profitably, with no formal structure and many unwarranted historical payments.

Throw in a relaxed approach to conditionality, lack of control over local sales teams and their ability to discount, and you have a recipe for continual margin erosion and few levers to drive sales other than ever more discounting.

This comes at a time when many suppliers have had to put price increases through thanks to numerous external factors: the cost of brass and ceramics has risen, whilst Red Sea shipping issues have caused delays and container costs to rise dramatically.

Add into this the slowdown following the post-pandemic boom, and the perennial challenge of converting interest within bricks and mortar stores that showcase a supplier’s products, into sales and not seeing them disappear to cheaper online retailers.

Establish discounts and terms

Taking control of this situation requires a properly structured approach.

Profitable growth can only come from a ‘true’ understanding of your current pricing and investment situation and an identification of your desired future direction.

It means establishing a pricing, discount, and trading terms structure that enables you to demonstrate the value your products represent and make it easy for the retailer to understand what they receive, why, and how they can earn more.

It also requires a skilled sales team to execute and hold changes, and move customer interactions to a proactive sales growth discussion, through the right commercial skill set.

Taking control also means pricing and discount decisions cannot be left to the regional sales executive, who in pursuit of agreeing the deal can add that further few percent to get to a “yes” from the retailer.

Before you know where you are, you’ve lost control of that structure; you don’t know how much discount you’re giving to whom and you risk complaints from one dealer that a rival is being supplied at a cheaper price.

Instead, as we have been doing with suppliers in the bathroom sector recently, you must take time to analyse what you need to do, understand where your current structure is set, work out what would be an appropriate discount structure and how you can back it up with incentives that get customers to do the right things at the right time for you.

The final, and fundamental challenge, of course, is how best to implement and execute it with your entire sales team onboard with the correct skills to deliver.