Distribution Best Practices for Pricing Optimization

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“Pricing decisions involve a number of complex factors and are difficult for companies to make”, writes the team from the Council for Research on Distribution Best Practices. They explain pricing optimization and how to do it well at your company. Here’s what you need to know…

According to the council, the practice levels for Pricing Optimization are as follows:

  • COMMON practice: 1) Cost-plus pricing (2) Cost-plus driven matrix pricing (3) List price or list-less pricing.
  • GOOD practice: 1) Value-based pricing (2) Pricing matrix based on customer stratification and seller’s item visibility (item stratification).
  • BEST practice: 1) Pricing optimization models (2) Pricing matrix based on customer stratification, seller’s item visibility, customer’s item visibility, unit cost, and historical gross margins (3) Pricing rules.

The most common forms of pricing methods are cost plus, value based, and market-based pricing. In most cases, all three methods are based on a single dimension, which could be cost, value, or competition. The following are characteristics of best practice models. So when you’re defining your models, ask yourself if they have the following features:

  • Easy to understand and apply when compared to a complex mathematical environment.
  • The core of the model should be based on variables that are typically readily available and/or easily quantifiable.
  • Address data availability and quality issues.
  • Leverage and integrate with existing system processes (for example, inventory stratification).
  • Able to implement them quickly with minimal IT resources.
  • Help achieve incremental business impact (ROI) by using simple pricing models before moving to complex pricing models.

Knowing best practices for pricing optimization within the distribution industry is the first step to improving your business processes and increasing your ROI. We look forward to sharing more best practices for Distribution on this blog, including how to streamline your process and reduce cost with enterprise content management and workflow. ImageTag, Inc. is the creator of KwikTag™, a leading capture solution for enterprise content management. KwikTag is the only imaging document solution fully integrated into the Microsoft Dynamics GP, NAV and AX ERP solutions.

By Kate Larson of Image Tag, a Document Management Microsoft Dynamics ISV Partner

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