Dynamic discount model for a european dealer network

Abstract

Entrematic is a world leader in the high-speed door B2B-market. Between 2009 and 2018, the company has experienced double digit growth (CAGR of 12.62%) every single year. In addition, the company’s EBITDA margin has on average been 30.4% in this period. However, due to the high profitability and strong growth, some inefficiencies have risen in Entrematic’s processes and operations. One of these inefficiencies is the discount structure, which is also the focus of this project. Currently the company has a static discount model, meaning that discounts that are given to certain dealers are based on historical relations and do not reflect the dealer’s actual performance. Therefore, Entrematic wants to move towards a dynamic discount model that is objective, transparent and measurable (Kachani & Sadighian, 2012) and that rewards dealers based on the value they create for the company. One could ask oneself: if the company wants to increase its profits, why wouldn’t they focus on cost-cutting or volume increases? Because pricing is the fastest and most effective way for companies to grow profits (Marn, Roegner & Zawada, 2004). On average, a 1% improvement in pricing will increase profits with on average 7.3%. Therefore, the research question is: “How should Dynaco’s discount structure ideally be organized in Europe in order to generate 5% extra operating profits within 12 months and create value for key stakeholders in the Dynaco ecosystem?”. In order to answer this question, a quantitative analysis of sales data for 2018 and 2019 has been done, with a profit waterfall and a scatterplot as the main tools. Additionally, qualitative interviews have been conducted to get a good understanding of the business and its operations. Finally, the outcomes of these two analyses in combination with the literature, are combined into a mixed method implementation with two main outcomes: a dynamic discount tool and Growth Share Matrix (BCG, 2020). For both of these outcomes, the focus is on the German and the British market. The discount tool configures discounts based on six characteristics that reflect the actual performance of a dealer. With only small adjustments, this tool can be rolled out to other European markets as well. Conservative estimates show that in 2019, the discount tool would have generated around €200k (or 4%) of additional profits in Germany. Secondly, the Growth Share Matrix (BCG, 2020) maps dealers based on annual revenue and growth potential. This gives Entrematic a clear idea of which dealers they should rationalize, but also which dealers show growth potential and should be invested in. According to our estimates, the discount tool will generate around 4% extra profits in the German market. Next to this, it will bring more structure in Entrematic’s dealer network. Secondly, because there is a clearer answer on “whom do we want to serve?”, the customer service and sales department will now shift resources from value-destructing to value-creating customers. Thirdly, an adaptation of the payment discount system will have a positive impact on the cashflow. Within 12 months, these measures will reach the predefined goal of 5% extra operating profits. However, in the long-term the benefits will surely be much larger than 5%.