Pricing Discount Discipline

Our work with wholesale distributor pricing strategies has continually exposed a variety of price leaks that drain profit margins. One such leak occurs when discount policies are frequently overridden. For example, consider a discount pricing schedule based on quantity breaks. This schedule discounts prices as an order size increases. A purchase of one to five units may be $34 while the price for six to 20 units might be $32.

While we could debate the actual structure of the schedule (we’ll save that for another discussion) that fact is that a schedule exists to provide a consistent application of prices in the marketplace. However, all too often, we see companies that apply these schedules all too infrequently. The exceptions become the rule. And, when enough exceptions exist, a new schedule is often created. Over time, we see dozens of schedules created for nearly every situation. In the end, the initial strategy is lost and uncontrolled discounting prevails.

The key is to adopt and adhere to a quantity break schedule and can be applied consistently. We have seen companies leak over $1 million just by not enforcing pricing schedules. Find the right schedule and stick to it.