PPB May 2015

76 / 104

74 • PPB • MAY 2015 THINK
More Pricing Models To Consider
Other pricing model considerations may include the following:
Blended models: Suffice it to say, not every transaction is the
same. The variables may include the value placed on ideas, design serv-
ices, additional services the distributor is able to provide such as ware-
housing, kitting and fulfillment, size of order (and commensurate risk),
importance to the business, production time, transparency through
supply chain, quality, specialty manufacturing processes, access to pro-
prietary products or intellectual property, quality control and testing
requirements, and others. Accordingly, smart buyers consider the full
range of their capabilities and requirements and consider a hybrid
model that allows them to address the scope of requirements
on each type of purchase. Distributors should work with
the client to gain a thorough understanding of the
purchasing expectations and requirements and to
develop a suggested model that scales to the
needs and wants of all purchases. As a distribu-
tor, my firm and I welcome the opportunity to
interact with clients in this fashion.
Sliding scale: Sliding-scale models are
frequently implemented in cost-plus models, in
which case the margin allowed would typically
depend on the dollar value of each individual
order. For example, the agreement may be that
for orders up to $10,000 an X-percent margin
is allowed, for orders between $10,000 and
$25,000 a Y-percent margin is allowed and for
orders over $25,000, the margin is restricted to
a maximum margin of Z-percent. These num-
bers are arbitrary, but the approach may be
applied to any sliding scale.
Volume rebates: This can be a sensi-
tive area. Procurement folks are often meas-
ured on the amount of rebates they negoti-
ate. While rebates can be valuable, the dis-
cussion on rebates should be balanced with
all of the other needs of both the buyer and
the distributor. That is not to suggest in any way that the financial
aspects of procurement are not important. Here are a few reasons
why rebates can be misleading or even dangerous to the relationship
with a client:
• Rebates are only one element of cost. I have seen, firsthand, a client
award business to another distributor for a seemingly irresistible
rebate program. However, after the program was implemented, the
client discovered that any savings from rebates were lost in other
areas of the model, thereby making sales and marketing budgets less
effective. After regaining the client’s business, the client disclosed
that too much emphasis was put on the rebate, which may have
blinded the client to other significant cost factors.
• At some point, the distributor should make a reasonable net return.
If rebate structures are too high, they either must be reflected in
base costing (in which case the client may pay too much up front)
or the distributor stops making any money on servicing the client,
which is clearly not a sustainable business solution for either party.
• If rebate rates are so onerous that they need to be reflected in a
distributor’s pricing, it may make the distributor uncompetitive with
the non-authorized vendors that rogue employees may like to use.
This can be punitive to the contracted distributor and can create
misperceptions about how well procurement is buying.
• Excessive rebate requirements may lead to rogue spending, which may
open the door to vendors with questionable business practices.
• Rogue spending can also limit procurement’s ability to
mitigate the risk of unsafe, non-compliant and even counter-
feit goods.
On the other hand, a modest volume rebate can
encourage compliance to spend with authorized
vendors. This is most effective when the rebate
accrues internally to the budget holders versus
procurement. This is not often the case, but defi-
nitely a best practice to motivate functional buy-
ers in sales, marketing, operations, HR and other
departments. Indeed, rebates may play a key role
in the market, but I have seen sometimes subtle
and sometimes blatant disadvantages of the
rebate model.
This article is intended to get our promotional
products colleagues—distributors, suppliers and
buyers alike—to think about the range of pricing
options, models and opportunities. Underlying
assumptions include that procurement wants to
buy well from qualified distributor vendors, that a
respectable and trustworthy distributor wants to
work well with customers who value quality serv-
ice, and that all this can occur while distributors
are pushed to continually up their game, increase
efficiencies and deliver more value in this creative
and ever-competitive industry.
The purpose of this article is to educate and provide perspective in rela-
tion to various distributor pricing models and approaches in the promotional
products industry. PPAI does not endorse any particular pricing model or
approach. Any opinions contained in this article are those of the author
alone and not of PPAI. PPAI has a long-standing practice of and is com-
mitted to ensuring that competition within the industry is uninhibited by
any express or implied regulation of prices or quantities of goods or services
provided by PPAI or through any PPAI publication provided for the benefit
of the promotional products industry as a whole.
Aaron Moscoe is CEO of Toronto, Ontario-based distributor TPS
Promotions & Incentives. Reach him at
PRICING IN THE PROMOTIONAL PRODUCTS INDUSTRY
“While rebates
can be valuable,
the discussion on
rebates should
be balanced
with all of the
other needs of
both the buyer
and the
distributor.”
201505_Pricing Feature_PPB 2013 4/14/15 6:24 PM Page 74