Setting prices, maintaining margins, keeping customers happy, managing discounts and promotions – a company’s pricing strategy is a complicated yet imperative part of business management. Using accounting inventory software such as Blue Link will provide tools for managing different pricing rules and strategies, to help automate the process of maintaining and updating price. However, the terminology used to describe different pricing rules can vary from one company to the next which can be confusing when trying to find the right solution to manage your specific needs and understand the options for doing so. Here we look to explore some of the pricing strategies used by wholesale distribution businesses, and the functionality available in accounting inventory software to manage them.
A product’s list price is a price assigned to a product as a means to standardize pricing across an industry. The term “list price” is also referred to as the Manufacturer’s Suggested Retail Price (MRSP), the Recommended Retail Price (RRP) or the Suggested Retail Price (SRP). For the most part, this number is used by distributors and wholesalers for informational purposes only – for example, to print on labels – and not for actual customer pricing. A product’s list price can also be used as part of the calculation to determine actual customer pricing. For example, distributors might want to set the regular price at 10% lower than the list price.
A product’s regular price is generally the price charged to the customer, where the customer is not entitled to any other pricing (i.e. volume discounts, price matrix or contract pricing). With Blue Link, the regular price for a product can be set in each currency accepted by the company and for each UOM. The regular price set by a company is completely discretionary and does not have to take into account the MRSP.
Contract pricing is used to allow for pricing other than the regular price. Contracts can be set up for one specific customer, or multiple customers and a contract price might apply to one product or multiple products. Contract pricing can have a start date and an expiry date – which once again can be applied to all customers and all products or some customers and some products.
There are many different reasons why a distribution business might have contract pricing in addition to regular pricing. For example, contract pricing might be a result of initial negotiations of doing business with a customer for a set period of time or a company may provide contract pricing to customers of good standing or high sales volumes to retain their business into the future.
Special pricing is usually set-up through a specific price contract. Special pricing can apply to specific product promotions, time-sensitive discounts, holiday or seasonal pricing and volume discounts. A price contract with special pricing will often have a start date and expiry dated based on certain criteria. As of the expiry date, the pricing reverts back to regular or contract pricing for that customer and/or product.
Quantity breaks are a certain type of special pricing where the customer receives a discount based on purchasing a certain amount of product. In Blue Link, quantity breaks can be set up for each currency and unit of measure and apply against the regular price of the item. Specific quantity break pricing contracts can also be set up to apply against customers with contract pricing as opposed to regular pricing.
To set up a price matrix, you need to first group products into different categories and then set up different discount levels for each category. The next step is to assign customers a discount level. Then, where the discount level and product number meet within the matrix, is where the price is determined. Let’s look at an example.
You’re a distributor of food and foodservice products and your customers include restaurants, other distributors and bakeries. You set up the following product categories:
- Matrix Category 1: dry goods, sauces, oils and condiments
- Matrix Category 2: paper and disposable products such as napkins, straws and take-out containers
- Matrix Category 3: apparel products such as chef hats, aprons and uniforms
You then go ahead and set up different discount levels for each product category:
|Product Category||Discount Level 1||Discount Level 2|
|1||10% discount||15% discount|
|2||0% discount||5% discount|
|3||2.5% discount||5% discount|
The next step is to assign customers to a discount level. In this example you decide to assign all your bakery customers to Discount Level 1 because they tend to buy a lot of product from Matrix Category 1, but not from Matrix Category 2 or 3. You then decide to assign all your restaurant customers to Discount Level 2 because they also buy a lot of products from Matrix Category 1 and also from Matrix Category 2 and 3. However, you have one bakery customer that is much larger than the rest and so you choose to also assign them to Discount Level 2 instead of Discount Level 1.
A minimum price dictates the lowest possible price allowed for a product to maintain a specific margin. This can be used as a means to restrict salespeople from selling items at too low a price. Within Blue Link, the ability for sales reps or other employees at an organization to override a price is based on permissions – with the appropriate permissions, anyone can change pricing.
In certain industries, pricing may change on a regular basis according to the market. In this situation, look for accounting inventory software that allows you to easily import and update pricing information across the product in question. Blue Link’s accounting inventory software allows a company to import price lists based on information from the vendor and have those lists automatically update pricing in the system. Product pricing can also be updated on a one by one basis or a global price change can be made where prices for all products or a range of products based on product code or product class can be changed (up or down) by a specific dollar amount or percentage. Global price changes can be applied to regular pricing, specific contracts or all contracts and against all UOMs, specific UOM’s, all currencies or specific currencies.
As you can see, there are a lot of different pricing rules available to a company. Depending on the type of customers and products you deal with, different types of pricing will be more appropriate. With robust accounting inventory software, you will be able to manage multiple pricing rules based on the customer and product and then set up a hierarchy of rules that can override one another depending on the situation. For example, you may want to set up a seasonal special pricing contract for a certain product that overrides the regular price, however, the system will not apply this seasonal pricing to customers where their contract price is already lower than the seasonal discount.