DM01: Efficient and optimized List Price (re)calculation based on pricing strategies

Local Pricing Manager

Business Objective:

Recalculate / Adjust Local / regional List Prices based on local conditions, pricing strategies and global (reference) Price.

Limited possibility to enforce countries / regions to align prices and stay in price corridor.

Automatic data gathering, applying pricing strategies for List Price calculation, combined with robust simulation capabilities and ERP integration for seamless execution.

• Reduce time spent on List Price revision.

• Eliminate risk of manual errors

• Improve price realization through simulating and providing more relevant list price recommendations.

• Aline prices across sales channels

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For this use we will be taking the role of a Pricing Manager. In the current state this process is typically very error prone due to manual changes  and because of a lot of manual happening in Excel files. We have different lookups and formulas and this is something that leads to many missed opportunities because people don't necessarily have the latest file to be able to work with or the data is not up to date. What we want to do is be able to automatically do the data collection, have a system that allows us to rely on the data that's being gathered to support our price setting process, being able to define different pricing strategies for that price calculation and apply those pricing strategies in a more efficient way and be able to understand where those opportunities might be at the end of the day. We also want to make sure that once prices are calculated, they are communicated back to the ERP system for seamless integration and execution.

Some of the benefits of this process are reduction in manual errors, elimination of risk and improvement of the price realization because we have a better understanding of how our prices are being executed in the market and how we can adjust the strategies to reflect the market needs so that we can have a better insight of the value that we're delivering to our customers.

In this case we want to see which products have good margins, which products are performing better in the market, have a better understanding of the products’ price waterfall. For this we will be using a dashboard for pricing analysis which allows us visibility into the product portfolio giving a quick understanding of which products have issues from a performance perspective. 

You can use filters to drill down into specific business units, countries, or customers.

In our case, you will quickly notice that there are a couple of products with low margins at which we may need to take a closer look.

For this stream’s purposes, let's select the first one and see what we can find out. Pricefx displays a full picture of the product starting from the price point different customers are willing to pay.

You will notice a big cluster of customers, or a combination of distributors or customers that are hitting low, floor prices, price points not recommended to go under. This is an opportunity to consider setting prices for this product that incentivize customers to move more towards the target price. You can also see how the product is performing through a scatter plot.

Here we notice some adjustments for price setting for our local list price across different countries along opportunities to address discounts. However you can see easily that the biggest throwback deals with cost.

The first thing that you may want to do is ensure that when you set the prices, you have a minimum margin established for the product to allow the system to calculate a price using that rule. To do this, click on the problematic product in your price list. The list will display all the different products in My Portfolio and the price points that were calculated. For the product we have already seen, you will observe that there is a price point already calculated based on data from the competition.

We will however make a couple of adjustments to this strategy to make sure that even though the data is based on competition pricing, the prices meet at minimal margin. We can see that the current price has a marginal flag. Although it is a minimal margin of 28% and the new price allows a margin of 28%, this is still too close to the minimum margin. We can correct this by increasing the minimum margin to ensure we place in a safer position. In order to do this, we will employ the price setting wizard process.

In the price setting wizard you can se what are the strategies used for a specific product. You will notice that for our chosen scenario there is a competition-based strategy and cost plus base strategy as well as some attribute strategies for products within that product group. We will be using the competition one and make some adjustments to that strategy. You can adapt strategies or change them at any point from the drop down and be able to apply those changes directly into your price list.

The strategy you are about to choose will display all the information you need to make sure you are making the right call: you have the price range for different computers in the market so you can see that the product is priced according to this set of price points so the only aspect you want to ensure that there is a profitable minimum margin. For this you can apply the minimal margin definition. To do so, you will add a new row and select a specific business or product group within your organizations. In this case, we will use residential small business and the product group is home automation.

Let’s apply a minimal margin of 50%. Next you will save the table changes and use this change in the strategy and recalculate the price point to see the impact.

Now we are back in our price list with the products we were looking at before. We can see that the 50% minimum margin has already been reflected in the price list allowing us to recalculate the price points of these two products and see how they change the strategy. Once the calculation has been completed, the margin flags have been removed. By scrolling back to the beginning, the system shows an override of the price despite the competition-based price enlisted.

Once everything is completed you can submit the list for review and approval and get it loaded into your ERP directly from the system. You can double check the list for whatever information you want by using the available filters.

In the price list you can see other products where these flags may be activated. So let's remove this filter and check other products where this margin flag is on.

To do this we will use the flag filter and sort to make our selection easier. This way you can quickly take the products at the top for instance. For this case we will adjust a product where we have a high margin flag activity. We are going to be changing to a different strategy for this product like cost-plus with a margin check. As a result, the price will be $605.00, so €4 in this case as margin. You can make that adjustment directly into the price list and if you scroll to the beginning, you will see that the margin flag disappeared.

This is a very quick and efficient way to make any price list calculations or recalculations by using dashboards analytics to understand where the opportunity might be as well as by looking at your price list and validations within that price list to quickly find and adjust the products where changes are needed.

This concludes the flow for price list calculation or recalculation by applying different pricing strategies for products in Pricefx.