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Best Practice on List Price Build up
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Author: Steve Peppler |
Category: Advanced Pricing Dynamics AX TPM - Trade Promotion Management
Published: Mon, August 06, 2012 |
About the Author
Steve Peppler discusses how customers want a list price, arrived at using many elements, to be delivered consistently and accurately during sales order entry/invoicing to arrive at a net price. Complications soon arise in most systems if you really wish to start with a different list price based on any number of combinations of items, delivery methods, ship from sites, ship-to locations, packaging configurations etc.? How do you need to price to increase your competitiveness and profitability.
His recommendations are based upon over 20 years of implementing advanced pricing systems to companies operating in a wide range of industries - from hi-tech to CPG, from medical devices to food, beverage and plumbing distribution - he's had his sleeves rolled up in them all.
The Issue:
The market for your company’s products and/or services is constantly evolving. More and more, customers want to keep things simple and receive a “delivered” price that includes many pre-paid distribution elements such as freight. But making things more complex, companies often want to be able to select the distribution method from a menu of possible methods, each resulting in a different invoice price.
How do you effectively manage with your invoicing systems today?
Standard systems start with a list price and calculate a net price. But what if you need to start with a different list price based on any number of combinations of items, delivery methods, ship from sites, ship-to locations, packaging configurations etc.?
- Do you create dozens of offline list prices and force customer service to access multiple data sources to select the correct List price?;
- Have you decided that multiple list prices are too difficult to manage so are foregoing opportunities and revenue by having one price based on average or blended pricing assumptions that can cause your margins to swing up or down if actual mix differs from planned; or
- Have you heavily customized your solution to work with a specific scenario set and are now stuck with one pricing go-to-market methodology with an ever changing marketplace?
We see all of the above issues and every combination imaginable, none of which are effective or efficient.
The Recomended Solution:
So what do we recommend as a best practice?
- Our definition of best practice pricing is to create pricing models (using simple configurable templates) that can manage any/all of the above.
- If List price is a calculated value then start with a base whether that be fixed, cost plus or margin based. Then allow for the setup of pricing attributes that can be based off of items, customers, or any field on the sales order including elements such as delivery method, ship from/to combination, packaging configuration etc.
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Now you have the basis for dynamically building a list price that the system selects correctly as the sales order is entered.
Automatically generating the correct price right every time is an immense improvement over manual or customized and fixed pricing methods.
However, to really add value you need to be able to capture the cost and revenue impact of each element in that price. This means being able to track each element per sales order line and posting these elements to specific general ledger accounts. If you can do that then you have the knowledge necessary to manage your pricing at a strategic level by understanding exactly what you earn per transactional element. Use this knowledge to adjust your pricing, adjust your offering in terms of transactional variations offered, focus on the elements that earn the most or least margin etc. to increase your competitiveness and profitability.
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