State and federal laws govern the process of securing credit information and disclosing credit terms and conditions. These protections have been created for the benefit of consumers to shield them from unscrupulous lenders. Before you create your credit policies, application forms, and processes, obtain the appropriate legal information. It will be beneficial to have your credit documents and procedures reviewed by legal and accounting professionals to ensure that you are starting off correctly.
Discounts, Incentives, and Other Price Adjustments
The final price customers pay for a product or service can be reduced by discounts from list prices. Some price adjustments, in addition to cash discounts and accounts receivable carrying costs, are
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Order size (quantity) discounts,
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Annual/quarterly/monthly volume discounts or bonuses,
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Dealer and distributor discounts,
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Promotion discounts and bonuses,
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Merchandising discounts,
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Cooperative advertising and marketing allowances,
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Product or product-line rebates,
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Exception discounts, and
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Freight/shipping allowances.
These price adjustments could come through any number of areas of the company and can vary widely from customer to customer, not necessarily according to a particular strategy, such as volume. The same product could have a broad range of prices—you might be surprised to see the differences. Michael Marn and Robert Rosiello have created methods for understanding pricing structures within a firm. The pocket price is what remains after all pricing factors, such as discounts and allowances, are deducted from lists or invoices to reach the final price. The “pocket price waterfall” is a visual representation of this concept.
In addition to looking at the pocket price waterfall, managers may explore the range of prices at which the same product or service is sold to different customers. The pocket-price band shows the range of prices for a given unit volume of a particular item at a given point in time.
If you are establishing pricing for new products or markets, you can keep tighter control by looking at the price more holistically, with a view toward the list, intermediate, and pocket prices. Regardless of the age or maturity of the firm, understanding where prices can be eroded and establishing and maintaining policies and procedures to ensure that prices are well managed are best practices. Remember to make changes or establish adjustments to pricing based on the factors that matter most to your customers. Get the most from your investment. The LSBF is your one-stop destination to know more about pricing and other things related to marketing.