The Critical Role of Executing Rebates, Allowances, and Dead Net Pricing-Top
The Critical Role of Executing Rebates, Allowances, and “Dead Net Pricing”
There’s an old pricing related joke that goes like this: A customer walks into a deli asking for the cost of a dozen bagels. The proprietor responds with $5.50. The prospective customer responds, "but the deli down the street sells a dozen bagels for $4.50". "Why don’t you buy the bagels there," the proprietor asks. "He’s out of bagels today," the customer replies. The proprietor retorts, "When I’m out of bagels, I’ll also sell you a dozen for $4.50". The customer pays $5.50 and receives the 12 bagels. Not only did the proprietor of the store know his competitor’s pricing, but he also knew the market price, as well as his competitor’s product inventory status. What’s surprising in today’s business-to-business markets is that many sellers don’t understand the market price, have little knowledge of competitive pricing, and sometimes don’t even know what price they’ve charged their customers. Now wait a minute, you’re thinking, how is it possible not to know what price a business has charged its customer? Isn’t the price obvious? Didn’t the customer agree to, get billed for, and pay a "price" for the product? Can’t the company’s multimillion dollar financial system report the price the customer paid? In many cases, the answer is no. To understand why, one must first understand what is meant by price. In "Pricing Making Profitable Decisions," Kent Monroe defines price as: Price = (quantity of money or goods and services received by seller)/(quantity of goods and services received by the buyer) In the introductory example, the quantity of money received by the seller was $5.50 and the quantity of goods received by the buyer was 12 bagels. In business to business markets calculating the price isn’t as simple. There are several reasons for this: • Unlike the bagel example, which involved a single exchange, business-to-business trades frequently incorporate multiple transactions. • These
There’s an old pricing related joke that goes like this: A customer walks into a deli asking for the cost of a dozen bagels. The proprietor responds with $5.50. The prospective customer responds, "but the deli down the street sells a dozen bagels for $4.50". "Why don’t you buy the bagels there," the proprietor asks. "He’s out of bagels today," the customer replies. The proprietor retorts, "When I’m out of bagels, I’ll also sell you a dozen for $4.50". The customer pays $5.50 and receives the 12 bagels. Not only did the proprietor of the store know his competitor’s pricing, but he also knew the market price, as well as his competitor’s product inventory status. What’s surprising in today’s business-to-business markets is that many sellers don’t understand the market price, have little knowledge of competitive pricing, and sometimes don’t even know what price they’ve charged their customers. Now wait a minute, you’re thinking, how is it possible not to know what price a business has charged its customer? Isn’t the price obvious? Didn’t the customer agree to, get billed for, and pay a "price" for the product? Can’t the company’s multimillion dollar financial system report the price the customer paid? In many cases, the answer is no. To understand why, one must first understand what is meant by price. In "Pricing Making Profitable Decisions," Kent Monroe defines price as: Price = (quantity of money or goods and services received by seller)/(quantity of goods and services received by the buyer) In the introductory example, the quantity of money received by the seller was $5.50 and the quantity of goods received by the buyer was 12 bagels. In business to business markets calculating the price isn’t as simple. There are several reasons for this: • Unlike the bagel example, which involved a single exchange, business-to-business trades frequently incorporate multiple transactions. • These