A global producer of consumer goods sought after expertise to develop an international net price management approach.
The client was keen to extend the engagement and revise its international trade term system. The overall objective was to increase counter-performance, foster a pay-for-performance culture, and ultimately reduce risk in its trade terms when international buying groups would start comparing terms across countries.
Our client wanted a solution that provided international harmonization while still leaving enough freedom for local teams to adapt to market peculiarities. The solution would also build on the international trade investment guidelines that they already had in place.
On top of that, they wanted a governance structure to anchor the new approach in the organization and make the results stick.
Together with our client, we developed a European trade term framework that prioritized pay-for-performance in five strategically selected spending buckets.
This gave clear guidance on including term height thresholds and appropriate counter-performances, while at the same time keeping as much of the existing structure in place as possible.
We first developed a thorough understanding of the status quo by building a comprehensive trade term database, analyzing contracts of all retailers in scope and categorizing the current terms. Leveraging this database, we compared trade term depth, allocation, and conditionality across countries, defining strategic directions for trade term design. Subsequently, in many working sessions with the clients’ global and country teams, we prioritized spending buckets, defined acceptable counter-performances and derived term height thresholds.
Additionally, we analyzed our client’s margin pool share and retailer margins across countries and retailers, and compared them to industry benchmarks to identify areas with the biggest potential for improvement. Utilizing both external and internal factors, we created a scoring model to identify the biggest opportunities for margin growth.
Combining the optimized trade term system with the growth opportunities, together with the client’s key account teams, we defined clear term moves and investment allocations to implement the new system.
As a result of all initiatives, we were able to significantly increase profit margin, gain incremental net sales through more pay-for-performance, and conditionalize a significant amount of previously unconditional trade investments.
These results were made possible by:
- Understanding the status quo via contract review and margin pool analyses
- Comparisons of analyses insights to external benchmarks
- Building a system with implementability in mind
- Defining a clear set of measures together with the customer teams
- Ensuring a successful implementation via a governance structure with clear roles and responsibilities
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