Any company that is selling through a network of sub- distributors, dealers or retails will have to develop a local pricing structure that matches trade terms on offer from other suppliers to the market. In the same way, industrial and business- to- business product suppliers will need to compete through the package of trade terms, as this is one of the key factors influencing buyer's decisions, along with price, quality, availability, warranties, after -sales service support, training and technical support, product functionality(benefits addressing needs) and design.
It is part of the sales manager’s role to establish that any local trade terms are both competitive with other suppliers and consistent with the market pricing and distribution policies of his or her company. Hence we will provide some commentary on the typical role of trade terms in influencing market activity through the distributor.
What the trade looks at
There are various typical forms that trade terms take, outlined in Table, which also highlights the particular concerns of the local dealer or buyer, and the supplying company.
The credit a company will give is normally influenced by:
The sales manager will be concerned that his or her company is providing adequate trade credit where that influences performance against marketing strategies and objectives, such as expanding product trial and distribution, or improving display for retail products.
The sales manager should recognize the time value of money in all transactions that extend credit at any level of the distribution chain.
Discounts are a tool for use in trade dealer and account management and are normally related to:
Many suppliers offer discounts not related to any of the above, but as:
Discounts given without specific contractual performance conditions are hard to remove and non-motivational in building sales volume and market share.
Types of motivational discounts
There are two main types of motivational discounts (with various application formats)used by suppliers in many markets, designed either to improve the cash flow or to encourage increased sales and loyalty. To be controllable and motivational discount sand rebates should be for specific performance achievements, and retrospective rather than ‘off invoice’ except where related to a sliding case rate scale.
The basis of calculating a minimum order is normally to set it at a level where the margin contribution will at least cover the direct costs of distribution and servicing the customer account. It is very common for companies not to know servicing and distribution costs, and therefore to set minimum orders too low, with the result that many orders are actually loss making.
Guidelines for establishing minimum orders
From the practical perspective the sales manager might develop an approach to minimum orders using the following guidelines.
The objective is to use trade terms fairly and equitably to motivate growth in volume and distribution.
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