Should I restructure my small-volume discount levels to make them more competitive?
I have a company that offers volume discounts to retailers. Presently 90 percent of my business is coming from retailers who are buying at the deepest discount level. With price increases over the past several years, I'm now seeing a bigger gap than I would like at retail between that 10 percent and the 90 percent who often have enough inventory to hold pricing for several months after a price increase. Is it time to raise the volume requirements, or should I restructure the small-volume discount levels to make the bottom 10 percent more competitive? The sales volume on the 90 percent retailers has slowed, but the 10 percent retailers sales are declining signficantly.
Join us in a city near you at Entrepreneur’s Accelerate Your Business event series kicking off Feb 23. View cities and dates »Yes, a price restructuring is needed. With an overall environment of inflation (i.e., a rise in the cost of basic goods and commodities, especially fuel), it's expected and understood that companies have to raise prices.
You may also want to look at this as an opportunity to segment your customers, so that your bottom 10 percent drop off completely and you can focus on the 90 percent who may have slowed, but who are profitable. You may want to further segment the 90 percent and see how you might be able to offer some discounts to your best customers or find ways to increase volume/profit from your end.
How do you segment? Just divide your customer base into A-, B-, C- and D-level customers based on their volume and profitability, as well as time and effort to service them. Right now, your D-level customers sound like the 10 percent segment. Within your 90 percent, you’ll also have D-level customers.
Ideally, you want a base of A- and B-level customers. Use this time in your business as an opportunity to get "lean" and explore your options in leveraging your own services and margins. Then when business turns around (and it will), you’ll be in an excellent position to significantly grow and capture additional market share.
All the best
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