Maximise Your Data

Case Study 4 – MYD Customer Discount Setting Tool 

Situation

• Customer pricing was largely managed by applying discounts to the published trade prices for the 2500 product discount groups. Account owners were required to review the discount schedule for each customer and negotiate appropriate discount levels. For this they were provided with a spreadsheet of 2500 product groupings with any existing discounts populated.
• There is a wide variation in trade price mark up between Manufacturers and even within a Manufacturer. Therefore the appropriate discounts could vary from zero to 98%. No guidance was given, so the account owner had to use personal knowledge or simply copy from another account.

Consequently, few accounts had discounts that were effectively maintained.

Challenge

• The task was to identify those discount groups that made up a significant proportion of sales and create a shortened list with discount guidelines to aid the account owners to set reasonable discount levels.

Approach

• Using Customer Segmentation data, we identified 3 initial customer segments that covered the majority of sales. Using historical sales data, we determined the average discount actually given after any price overriding. We also considered the variation in discount within the segment. Using an algorythm developed by MYD, we were then able to calculate recommended min and max discount levels that should be offered by discount group by customer segment. We also calculated the forecast margin given the proposed discount.
• The resulting process allowed the data team to produce customer specific templates showing existing discounts, proposed discounts, gross margin projection and historical spend. The spend information was useful for identifying the important spending categories for this customer. Also by using the discount group ranking, they were able to identify those categories where the customer was not spending, giving them a simple incremental sales tool.

Results

• In the initial trial, 650 customers had their discount schedules reviewed using this tool. The results show that in spite of the industry wide reduction in sales revenue, the increase in gross margin retained the profit pounds at the same level.

If we were to project the margin increase of 3.2% using the later lower sales level, then this is worth £750K pa profit.

• An associated benefit was a 10% increase in the use of system held discounts (a 25% increase in the number of order lines now using a discount). This reduces guesswork and processing time. It also gives the customer greater price consistency.
• The tool is now embedded into the company processes with 600 account owners, and is generating further gross margin improvements.