If you have never given pricing complexity any thought other than “Yep, pricing is a challenge,” allow me to outline processes that can simplify and improve this valuable area of your business.
Companies in commodities deconstruction businesses like dairy and meat sell a wide array of products. These products can range from primary products that these companies produce and sell daily to secondary or tertiary by-products that might be sold daily or infrequently. This coincides with customer demand being fickle and erratic export demand. Markets are difficult to predict (it’s called a random walk for a reason) and create a whole array of additional complexity on their own.
In many organizations there is a pricing manager or other employee who is tasked with creating the price list and working with salespeople to select the best prices. This person is often a senior manager with years of experience in the business. They have an intimate knowledge of the customers, markets, and many of the products. In other words, the value of their domain expertise is incalculable to the company.
These individuals use their knowledge of market history and the current market dynamics to price hundreds, if not thousands, of products for hundreds of customers weeks and months into the future. Many of these individuals are flat out amazing at using their instincts to position their products at the right price for maximum profit. However, as companies have become larger and more complex over the last 20 years this already daunting task has become more and more difficult.
I did this job, among others, for years when selling fresh pork products. In the first few years of my career I had to manage a few hundred product codes as the business was more commoditized. Over time those few hundred codes wouldn’t even have covered just the loin primal! There were thousands of codes due to the proliferation of international sales markets, more trim requirements, customer specific codes, and a host of other issues. Yet we were still trying to price every code based on overages to the largest selling “driver codes.” These overages were seldom readjusted to reflect the differences in by-product credit values, changes in packaging cost, yield changes, customer price elasticities, etc. In short, it seemed increasingly impossible to create an optimized pricing structure based on the tools we had.
How does Austin Data Labs solve this pricing problem?
Because of these (and similar) issues, Austin Data Labs was determined to create a pricing structure product that could solve the myriad problems outlined above. We started with a simple design concept. The software must mimic the way a pricing manager creates a pricing plan, but the solution will do this for each and every code. With this design concept we created a solution that is simple and easy for a pricing manager to understand and interact with because it is intuitive to their lived experience while also being a smart tool. This means the price for any code for any time frame can be understood without a PhD in Data Science.
Because a human simply cannot track all the data needed to make the best pricing decisions for every code/customer/time frame combination as there is simply too much data, our software eases the load on the planners and price managers. It does that, in part, by creating a logical process that uses that data just as a very good pricing manager would if they had infinite time. It creates price lists that are extremely accurate with minimal daily maintenance.
What do we take into account in our Pricing Module?
• System generated market forecasts using best fit forecasting methods. These forecasts can be overridden by the manager if they disagree with them.
• Overages to the markets that best fit the product code. These overages can be generated in a multitude of ways.
• We can build in incremental margin analysis (break even pricing) so the base price of each material code cannot be lower than your most basic supply clearing codes so you are not selling lower yielding products for less per unit margin than other like codes.
• Price elasticities can be integrated to maximize prices by customer.
• Product available to sell can be measured against an optimal target sold position by product/time frame so the system will automatically adjust pricing across a product category so you don’t over or undersell at the wrong price.
When you look at that list above ask yourself, how does a pricing manager do this for every code under their purview? We should all be amazed they do as well as they do because that is simply impossible for any human to achieve. But it is not impossible for a well-designed software system in conjunction with the pricing manager!
Without a doubt, the best possible prices across all your company’s products will only be achievable when you have the unstoppable duo of a pricing manager using their considerable skills with a software system designed to cascade those pricing processes to every possible pricing combination.
Find out how we can help you.