Trade Terms / Folding: Profitable growth through performance-oriented condition management

What are trade terms?

The term describes in the broadest sense customary contractual formulas by the International Chamber of Commerce.

In a narrower sense, it is about a condition system.

What is a condition system?

• A condition system is a set of rules with which, for example, branded items are marketed to the shopper at the "right" prices via trading companies in order to achieve the greatest possible sales success in the form of sales, market share and profitability.
• A condition system follows a systematic condition policy based on principles.
• In a system of conditions, a provider defines under which conditions which conditions should be granted in which form, deduction sequence and amount in order to get from the list price to the so-called NNN price.
• The granting of conditions affects the SRP and, in addition to the manufacturing costs, takes into account the competitive environment, the market attractiveness, the relative market share, the strategic price positioning of an article and the shopper's willingness to pay.
• In detail, system-forming design decisions have to be made for conditions: For which customers, parts of the range, for which channels and occasions (e.g. price offs, promotions), for which period of time and which reference basis. In this context, folding comes into play.

Prices and conditions: income lever or value destroyer?

Price and condition management is demonstrably the most important and strongest instrument for increasing corporate profitability. But: Aggressive price and condition policy as well as increasing concentration of trade lead to the destruction of values ​​for the manufacturers.

The "Price Waterfall"

That is why the trade terms in many companies are at a very critical level. Conditions tend to rise continuously without a corresponding return on investment and often exceed > 50% of the gross list price. To compensate, these are regularly adjusted and reach the level of "moon prices", the relationship between list price and RRP becomes disproportionate.

What can a Trade Terms project achieve?

• Preventing or slowing down the further increase in the burden of conditions
• Stronger linking of trade terms with performance/reward components
  - Logistics / regulation / payment: Cost-oriented use of conditions
  - Assortment/marketing: growth/potential-oriented use of conditions
• Avoiding an uncontrolled proliferation of customer-specific special conditions ("worthless" condition inflation)
• Improved management and control of the assignment of conditions
• Reduction of merger risks or additional condition requirements in the event of a change of buyer ("best value problem")
• Adjustment of individual conditions to changed market conditions (category management, ECR, etc.)

Bavaria Consulting supports companies in the analysis, conception and implementation of price and condition projects / trade terms for sustainable revenue and earnings protection.

Folding

The problem of "moon prices" with high condition factors at the same time can be effectively countered by folding. The aim of folding is to eliminate non-performance conditions while at the same time lowering the gross list prices. The purchase prices to the trade remain unchanged.

Control-oriented condition system

A control-oriented price and condition system is based on the process along the value-added stages.

Trade Terms / Folding: Project phases and procedure at a glance

Trade Terms / Folding: Value Proposition

• The transparency in your condition model increases, the complexity decreases.
• Your conditions strategy is linked to your sales strategy and takes the changed market and competitive conditions into account in the long term.
• The relation performance – consideration of the funds used increases through a differentiated use of conditions.
• Your sales department will be enabled to conduct more successful condition negotiations with better economic results.
• Your strategic market position vis-à-vis trading partners is strengthened.

Our experience is your success!

The partners of Bavaria Consulting have more than 20 years of project experience in the area of ​​trade terms / folding - key account management - annual discussions and negotiation strategies with retailers.

Our expertise is cross-industry - food, beverage and pharmaceuticals.

In the SWEETS GLOBAL NETWORK e.V. Magazin, Lebensmittel Praxis and Drinks Newspaper you will find our current press articles on Trade Terms / Folding.