Discount Management

PRICING STRATEGY
DISCOUNT
MANAGEMENT
CHAPTER 8
LEE, CHEZTER JOHN D.
OGARTE, JAMESON
DISCOUNT MANAGEMENT
THE PROCESSES AND TECHNIQUES ORGANIZATIONS

USE TO CONTROL AND OPTIMIZE THE DISCOUNT THEY
OFFER TO CUSTOMERS.
IS A CRUCIAL FOR IMPROVING FIRM PERFORMANCE ,
AS EVEN SMALL DECISIONS CAN ACCUMULATE TO
PRODUCE A SIGNIFICANT RESULTS.
IMPORTANCE OF TYPES
DISCOUNT OF
MANAGEMENT DISCOUNT
1 IMPROVE OVERALL PROFITABILITY 1 VOLUME DISCOUNT
OPTIMIZE & ADAPT PRICING

2 STRATEGIES
2 EARLY PAYMENT DISCOUNT
STRENGTHEN CUSTOMER
3 RELATIONSHIP
3 LOYALTY DISCOUNT
CLOSE DEALS FASTER & MORE

4 EFFICIENTLY
4 PROMOTIONAL DISCOUNT
5 ENHANCE OPERATIONAL EFFIENCY 5 SEASONAL DISCOUNT

CHALLENGES IN DISCOUNT MANAGEMENT
POLICY
Challenges in Discount Management Policy
Discounting decisions have challenged organizational
cohesion and design for decades.
One of the most common discount management
challenges facing organizations is the
disparity in incentives and knowledge between fi eld and
centralized executives.
FIELD EXECUTIVES
PUSH FOR MORE
DISCOUNTS
Salespeople and marketing communications executives in the
field are encouraged to pur-sue market share. Their
incentives, which take the form of bonuses and promotions as
well as peer recognition, are often tied to their ability to
increase sales volume and achieve targets. In fact, at one time
it was common to set bonus structures for fi eld executives in
direct proportion to the volume they sold; this practice still
continues in some fi rms today. With these kinds of incentives,
it is not uncommon for fi eld executives to move quickly
toward discounts to achieve volume targets.
FIELD EXECUTIVES
PUSH FOR MORE
DISCOUNTS
Field executives face the challenge of achieving sales goals by uncovering more sales
opportunities and communicating value to prospects. Discounts can be a quick way to
capture volume and deliver on these objectives. Manufacturer-financed price
promotions and discounts can help achieve greater distribution and stronger support.
However, the needs of individual field executives and the company may be misaligned
due to differences in risk-bearing. Salespeople may bear more risk than the company,
which typically manages multiple sales opportunities at a time. Abdicating all
discounting authority to field executives alone can lead to disastrous situations. Despite
incentives aligning with organizational goals, managing discounting decisions is still
necessary to avoid abusive price concessions.
CENTRALIZED
EXECUTIVES PUSH
FOR HIGHER PRICES
Centralized executives often focus on capturing the highest price possible,
expecting volume to be delivered. They receive incentives like compensation,
promotions, and peer respect for creating high-demand products. They hold
decision-making authority over product design and pricing, expecting field
executives to extract high prices from customers. Discounts may contradict
this basic decision paradigm. Centralized executives may lack the necessary
tacit knowledge of the market to make proper discounting decisions, as they
may not predict market segmentation or the willingness to pay between
individual customers.
DISPARITY ABOUNDS
Field Excutives Centralized Executives

Field executives often push for centralized executives argue for
greater discounts, driven by their fewer, if not zero, discounts, as their
incentives to increase sales volume incentives are often tied to creating
and achieve targets. products with strong demand at a
high price.
NET PRICE BAND
Refers to the range within which the net price of

a product or service must fall after all discounts
have been applied. This ensures that the final
selling price stays within a predefined
acceptable margin for the company, balancing
profitability and competitiveness.
Components of Net Price Band:
Minimum Price(Lower Band)

Maximum Price(Upper Band)
Price Band Width
NET PRICE BY MARKET VARIABLE
Refers to the adjusted price that customers pay for a product or service
in different markets after accounting for market-specific discounts,
costs, and pricing strategies. This variable helps businesses tailor their
pricing to the unique conditions and competitive landscapes of each
market they operate in.
Calculation:
Net Price by Market=Base Price −Market-Specific Discounts + Additional Costs

For Example:
The Company is selling Smartphone with a list price of P16,000 from different markets:
Market X and Market Y.
Market X(Huawei)
Base Price: P16,000

Discount: 10% (1,600)
Additional Cost: 5(tax)
16,000 − 1,600 + 5 = P14,405
Market Y(Xiaomi)
Base Price: P16,000

Discount: 20%(2,400)
Additional Cost: 10(tax)
16,000 − 2,400 + 10 = P13,610

PRICE WATERFALL
Is a strategic tool used to visualize and
analyze how various discounts, rebates,
and additional costs impact the actual
selling price of a product or service,
starting from its list price. The waterfall
effect illustrates the difference between
the list price (the initial price) and the
pocket price (the final price that the
company actually receives), identifying
each step where revenue is lost or costs
are incurred.
Formula:
Pocket Margin = Invoice price − Off-Invoice Discounts − COGS
For example:
List Price: P55,000
On-Invoice Discount: P5,500 (10% )
Off-invoice Rebate: P500
COGS: P35,000
=P49,500 − 500 − 35,000
PM = P14,000
DISCOUNT DECISION MANAGEMENT
Refers to the process of systematically managing and optimizing

the decisions related to offering discounts. It involves using
data-driven strategies, tools, and policies to make informed
decisions about when, where, and how much discount to offer.
DECISION RIGHTS
Refers to the specific authorities assigned to individuals or teams within an

organization regarding the approval and implementation of discounts. This
includes determining who can grant discounts, the types of discounts they
can offer, and the thresholds for approval. Clearly defined decision rights
help maintain control over pricing strategies, protect profit margins, and
ensure alignment with organizational goals.
DECISION INCENTIVES
Refers to the strategic motivators or rewards used to influence a buyer’s

decision to make a purchase, often by offering discounts or special pricing.
These incentives are designed to encourage quick or larger purchases,
optimize inventory movement, or increase customer loyalty.
Thank you!

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PRICING STRATEGY

THE PROCESSES AND TECHNIQUES ORGANIZATIONS

OPTIMIZE & ADAPT PRICING

CLOSE DEALS FASTER & MORE

5 ENHANCE OPERATIONAL EFFIENCY 5 SEASONAL DISCOUNT

Field Excutives Centralized Executives

Refers to the range within which the net price of

Components of Net Price Band:

Minimum Price(Lower Band)

Net Price by Market=Base Price −Market-Specific Discounts + Additional Costs

Base Price: P16,000

Base Price: P16,000

16,000 − 2,400 + 10 = P13,610

Pocket Margin = Invoice price − Off-Invoice Discounts − COGS

On-Invoice Discount: P5,500 (10% )

Off-invoice Rebate: P500

=P49,500 − 500 − 35,000

Refers to the process of systematically managing and optimizing

Refers to the specific authorities assigned to individuals or teams within an

Refers to the strategic motivators or rewards used to influence a buyer’s

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