Special conditions – focusing on what the customer wants and needs
Special conditions – focusing on what the customer wants and needs
Special conditions are an important pricing tool because customers want to feel they are being treated individually. But what about special conditions? Are they really as important as predicted years ago?
The granting of special conditions is part of a company’s pricing strategy as is the use of differentiated price models. Depending on the pricing strategy, special conditions may even be granted to a majority of customers. This is particularly the case when a high-price strategy is pursued or the clientele attaches great importance to being treated individually, as in private banking, for example. The granting of special conditions can therefore generate additional business and increase sales. But what about profitability? In some businesses, the granting of special conditions is already priced into the calculation, in others it is not. In any case, the granting of special conditions leads to a percentage reduction in revenue and with it in profitability. And this is precisely where the business case for systematic monitoring and controlling of special conditions lies. Managers who calculate a reduction of 10% on all special conditions granted for their company will be amazed at the effect this will have on the level of EBIT.
The granting and periodic monitoring of special conditions must therefore be subject to a managed process. There are essentially three process trigger points for monitoring special conditions:
- Authorization of the granting of special conditions:
Companies must ensure that the authorization to grant special conditions corresponds to a rule set and that an approval process is established. It is important to note that approval must be granted very quickly because special conditions are granted in the front-line sales process. It is advisable here to also work with rule ranges within which a sales representative is authorized to grant special conditions without obtaining prior approval. There must be a system in place to prevent the violation of such rules at this point.
- Authorization of the maximum amount granted under special conditions:
The same applies not only to the authorization to grant special conditions, but also to their maximum amount.
- Recognition of events requiring termination of special conditions granted:
Once customers have received special conditions, they can often keep them for a lifetime, regardless of how the profitability of the business relationship develops. They are flagged “with special conditions” and nothing ever changes. That is why a monitoring system for any granted special conditions should be established where they are reviewed either periodically or driven by events to determine whether they are still justified. Rules that a customer relationship must meet in order to enjoy special conditions must be defined. Such rules can be based on the frequency of purchases, sales volume or, even better, the profitability of the business relationship. Reports on the special conditions that are no longer justified according to their rule system periodically show the additional revenue potential. However, claiming this potential additional income requires a great deal of tact, so as not to offend customers and then lose them. It is advisable to either convince the customer in a personal meeting that he is no longer entitled to special conditions or to encourage them to generate more sales again so that they can continue to enjoy their special conditions.
It is also important to align the salesperson’s incentive system to primarily sell products, not discounts. Therefore, it is advantageous if the internal billing system is designed in such a way that the reduced revenue caused by the granting of special conditions is charged to the profit and loss account of the individual salesperson.
Conclusion:
Active management of special conditions is important and has a significant impact on a company’s profit situation. Setting up a monitoring and controlling system is relatively simple but it requires a system that can manage individual special conditions and identify and accurately allocate the resulting revenue shortfalls. A business case for a system to actively manage special conditions pays for itself very quickly. With QPP, you get everything you need to actively manage your special conditions.
It is impossible to imagine today’s consumer world without special conditions. They have more than just a monetary effect on buyers and customers. The psychological aspect is even more important. These rewards in a monetary or psychological way make the customer feel good about buying a product and doing business with a company.
Every customer wants individual attention and pricing. However, from a company’s point of view, the art of selling is to get the maximum price from the customer while keeping them happy and satisfied. Therefore, a good salesperson or good products do not need special conditions or only use them selectively.
Differences between luxury goods and goods for everyday use
However, there are products that can be sold without special conditions and still give the buyer a good feeling and psychologically positive feedback: luxury goods, rare goods, and specialty goods such as real estate or art. With these products, no special conditions are granted, but the buyer is rewarded with endorphins. The negotiation of the purchase price and the feeling of having made a good deal have the same psychological effect as special conditions. In the case of goods of everyday use, where the offer is varied and comparable, it is the overall financial package along with exceptional service that matters. Customers want a certain individuality, acknowledgement, and exceptional service. Special conditions are a part of this because they show that the customer is appreciated, important, and, most importantly, that they enjoy a certain status. Who doesn’t appreciate it when they feel like they made a good deal or that their conditions were more favorable than those of others?
Special conditions as sales support
Special conditions are not only reflected in discounts, but also in additional services and goodies. Bundles, for example, often include additional products when a customer buys a product or signs a contract. For example, a store may offer a gift with the purchase of a product or a restaurant may give out free coffee to frequent customers. These can also be considered special conditions to support the sales process and to create loyal and happy customers.
There are also the cases where special conditions don’t serve as sales support to get the customer to buy the product in the first place. They can also be granted after the fact, usually once only, if for example the service was lacking or the product had defects. The intent is to appease the buyer. Who hasn’t received a free espresso or dessert at a restaurant when the food didn’t meet their expectations? Or, when buying online, received a discount after the fact in case of a defect, so that they would keep the product and not return it? These are also considered special conditions.
The more complex the products and price compositions are, the more difficult it is for a company to model their special conditions in their pricing, to have transparency, and to keep control over who can and should give which conditions, how and when.
Good special conditions management helps a company successfully enforce its prices, support the sales process, and make the purchase an individual and rewarding experience for the customer.
WAVESTONE Pricing Platform – the easy way to manage special conditions
The active management of special conditions has a significant impact on a company’s earnings situation. That is why you need a monitoring and controlling system to determine and precisely allocate any resulting shortfalls in revenue. With QPP, you get everything you need to actively manage your special conditions.
