The advent of the COVID-19 pandemic has resulted in many businesses taking a severe hit – volatile demand for products had become a major problem for companies across the world. Against this backdrop, several firms have come up with novel pricing models to augment their sales volumes.
Most organizations are using robust Configure, Price, Quote (CPQ) tools to implement innovative pricing policies to stir up demand for their products. These powerful software applications enable businesses to enjoy high levels of flexibility in pricing, based on dynamic market conditions and the specific needs of each of their clientele.
One of the most widely used CPQ platforms is Salesforce CPQ. Available as part of Salesforce Revenue Cloud, this highly user-friendly solution allows companies to define and apply pricing rules of any complexity, rapidly, with minimal effort. Firms can leverage a wide variety of pricing methods including List, Cost, Block and Percent of Total to ensure their customers get the best deals and increase their revenues.
Today, we’ll examine two commonly-used features in Salesforce CPQ viz. Block Pricing and Discount Scheduling. We’ll see what these two features are, learn how and when they can be used and understand the differences between them. Let’s begin.
What Is Block Pricing and How Does It Benefit Businesses?
Block Pricing enables you to come up with different prices for a product, based on the quantity of the product purchased. Consider the following scenario.
A manufacturer of television (TV) sets has dealers across the US who buy the electronic gadgets in large numbers. The manufacturing organization wants its dealers to buy the TV sets in bulk and intends to offer better deals to those channel partners who buy more. It sets the price of a lot of 1 to 10 TV sets at USD 300 each. But if a dealer purchases a lot containing 11 to 20 TV sets, he needs to pay only USD 250 for each.
As you can see, Block Pricing enables the manufacturer to specify different prices for different ranges of quantities purchased. This feature helps incentivize buyers who place larger orders and goes a long way in simplifying pricing structures by organizing various quantities of products into a group. Block pricing is a very useful method for handling quantity-driven variations in pricing in a hassle-free manner.
Block Pricing provides you with the capability to specify prices for a particular range of quantities of a product rather than a unit of the product, enabling you to exercise greater control over your pricing strategy. You can utilize the Salesforce CPQ feature to set up tier-driven prices, and this makes it very useful for B2B companies that often sell huge quantities. This means if you sell a product where economies of scale play a major role, you can sell your products at significantly-lower price for large volumes encouraging purchasers to buy in bulk.
Let’s now move on to see what Discount Scheduling is all about and how the Salesforce CPQ feature can be utilized to boost sales.
What Is Discount Scheduling and How Does It Help Companies?
Discount Scheduling enables you to offer tiered discounts based on the quantity of a product sold. Unlike Block Pricing, the unit price of the product remains fixed – instead, a certain percentage of discount is provided on the quantity bought. Consider the following scenario.
A manufacturer of motorcycles that has a distributor network across 12 countries uses discount scheduling to provide tiered discounts to its dealers. It provides a discount of 5% for orders between 10 and 150 motorcycles, a discount of 10% on a purchase of 151 to 250 vehicles and a discount of 25% on quantities exceeding 250.
As you can see, the unit price of a motorcycle remains fixed. But as the buyer purchases more units of the two-wheeler, he can avail higher discounts. The higher discounts are an incentive for buying the product in larger quantities.
Discount scheduling allows you to enjoy very high flexibility in providing clients with excellent deals. You can provide both slab-based and quantity-range-based discounts, using the novel pricing feature of Salesforce CPQ. Consider the following.
An industrial battery manufacturing company prices one of its products at USD 20 per unit. The company intends to provide 3 tiers of discount as follows.
Using the Discount Scheduling feature of Salesforce CPQ, the battery maker can either choose to offer slab-based or quantity-range-based discounts. Let’s see how the price is calculated, assuming a customer buys 10 units of the product.
Scenario 1 – Slab-based Discount
The 10 units of the product fall in Discount Tier B. Hence, the price to be paid by the buyer can be calculated as shown below.
(Number of Units within Discount Tier A) * (Unit Price of the Product) *(100-Percentage of Discount Offered) %
(Number of Units within Discount Tier B) * (Unit Price of the Product) *(100-Percentage of Discount Offered) %
= (9) *(20) *(100-0)% → 9 * 20 * 100% → 180
(1) * (20) * (100-5)% → 1 * 20 * 95% → 19
= USD 199 (price to be paid for 10 units under the slab-based discounting method)
Scenario 2 – Quantity-range-based Discount
The 10 units of the product fall in Discount Tier B at 5%. Hence, the price to be paid by the buyer can be calculated as shown below.
(Total Quantity Purchased) * (Unit Price of the Product) * (100-Percentage of Discount Offered)%
= 10 * 20 * (100-5)%
= 10 * 20 * 95%
= USD 190 (price to be paid for 10 units under the quantity-range-based discounting method)
Discount Scheduling can also be used to provide incentives for customers who buy subscriptions of products for longer periods. Consider the following scenario.
An Over-the-top (OTT) television services provider offers discounts based on the period of subscription availed by the customer. The company provides a discount of 10% on 1-to-24-month subscriptions of its products, a discount of 15% on subscriptions ranging from 24 to 48 months and a discount of 30% on subscriptions of over 48 months.
You can also provide higher discounts on promotional offers than on normal business days. One of our clients, an electronics giant, provides a discount of 20% on its products sold on 4 July and other national holidays. The company provides a discount of 10% to its customers on other days of the year.
Both Block Pricing and Discount Pricing are very useful for companies to incentivize their customers to buy more by offering them better deals. Block Pricing is the ideal choice when you wish to price a product based on different quantity ranges offered for sale. It is useful when you sell various units of a product in a pack and wish to represent the pack as a single quote line. The price is calculated depending on the range into which the quantity purchased falls, and reducing cost per unit acts as an incentive.
On the other hand, Discount Scheduling enables firms to offer tier-based discounts on the list price based on particular quantity or term ranges. It allows high levels of flexibility in pricing and allows you to provide a discount as a percentage of the price of the quantity sold. Alternatively, you can offer a slab-driven discount where units in different ranges get discounts depending on the discount provided for their respective tiers.
Block Pricing is primarily driven by quantity ranges, while Discount Scheduling facilitates volume-based discounts, by taking the total quantity or terms of a quote line into consideration.
You can combine both Block Pricing and Discount Scheduling and apply them together to the same product. Salesforce CPQ will ensure the automatic application of the discount schedules to units that are not within the product’s block pricing tiers.
I’d like to conclude by saying each of the two features has its benefits and is suitable for various scenarios. At Solunus, our team of Salesforce CPQ experts helps you choose the right pricing method depending on your unique needs to maximize sales revenues. The team has worked with companies of all sizes across diverse industries, empowering them to harness the immense potential of Salesforce CPQ to meet their business goals.
Solunus is a leading Salesforce consulting company, based in Dallas, TX, USA. Our proven ‘needs-first’ approach coupled with our unrivaled expertise of the Salesforce platform enables us to provide the perfect solution to help you deliver delightful services to customers and achieve rapid growth.