Improving conditionality to form mutually beneficial partnerships with customers
In Asia, joint business planning is less common than in Europe, and we’ve found that customers have a stronger influence with pricing and promotions over suppliers, exposing them to future risks.
Customers in these markets are often unwilling to sign contracts or update trade terms agreements. Frequently they request 100% supplier share of funding for customer-run promotions and are reluctant to share data that provides visibility of performance. They tend to over-buy discounted stock and demand some unconditional discounts.
These challenges are all too familiar for our European suppliers. To tackle the problem, it’s time to start assessing the conditionality of agreements in place with your customers. There are 4 key steps to follow:
Understand your trade terms and their conditionality
Strengthen these trade terms
Demonstrate the value of your terms to your customers
Implement the plan
1. Understand your trade terms and their conditionality
First, collate existing trade terms for each customer and ask yourself the following questions:
What % of my trade terms are conditional?
Are the payments linked to counterparts that can be measure and reported?
Are the conditions written in the contract?
What benefits will this drive for you and your customer?
This will help you critically review your agreements and assess where they sit on the conditionality spectrum.
We often find that our clients see trade terms as a ‘cost of doing business’ rather than a beneficial opportunity to drive customers to action. If your business can resonate with this, then it’s very likely that you are on the left-hand side of the conditionality spectrum.
2. Strengthen these trade terms
Now you’ve understood your trade terms and their conditionality, the next step is to understand how you can improve them using 4 key steps:
3. Demonstrate the value of your terms to your customers
Negotiating trade terms with customers is never easy, especially if it involves a new way of working. Preparation is therefore crucial. Build a selling story to show the customer why this will be mutually beneficial and prepare your sales team to deliver it. Once you win over your customer, don’t forget to agree in writing the terms of engagement.
4. Implement the plan
So, your customer has agreed to your new terms. To measure and review the execution of counterparts, ensure you setup regular meetings with your customer, taking the opportunity to showcase the benefits they are getting out of the agreement.
Enforcing conditionality requires a lot of work and effort, it’s not an overnight job. But, take it as a step in the right direction towards building mutual partnerships with your customers. It’s worth it in the end!
Here's the full process: