As the cost of living crisis continues to bite and supply chains come under ever greater pressure wholesalers are bearing the brunt of the economic headwinds that are facing almost every industry – and are set to worsen. In particular, pricing, an essential part of any business, is becoming more of a challenge, writes Chris Dieringer, Chief Customer Officer, Flintfox.
With input costs becoming increasingly volatile, many wholesalers are finding themselves struggling to understand the effect of changing cost prices on margins, with rebates adding to the complexity. Real time transactional margin visibility can allow for more accurate, timely pricing but all too often this is carried out retrospectively – after transactions have been accepted or processed.
The complexity of managing buy-side and sell-side pricing and promotions, makes the life of the wholesaler harder than almost any other industry. To maintain margins and allow for realistic forecasting, wholesale managers need to be able to identify cost price changes quickly so that they can act on them. Equally important is the ability to easily change pricing as costs vary – with effective dates.
How to avoid absorbing costs
To avoid being forced to absorb costs and allowing profitability to suffer, wholesalers need to be able to pass on price increases as soon as they’re received or, at least, when they know the effective date of the increase. This will allow them to negotiate better rebate terms.
There’s also a need to be able to make adjustments with minimal admin and ensuring those changes are immediately effective regardless of the number of changes or the sales channels. For example, the web site price should be updated at exactly the same time as all other order intake areas, in order to avoid inconsistencies.
This sounds simple but with thousands of product lines and buy-side prices changing rapidly, it’s a labour-intensive job. Flintfox recently commissioned a study with Microsoft and Forrester that explored the current challenges faced by retailers and wholesalers. It found that 52% of retailers find it hard to execute different pricing for products across different channels, and 59% of retailers find it hard to manage complex promotional offers.
One of the reasons it’s so hard is because most wholesalers are manging pricing manually, through a collection of spreadsheets. The Forrester research revealed that this takes on average 71 hours a day to manually manage pricing strategies. That’s a team of eight people managing spreadsheets and painstakingly crunching data everyday just to keep on top of pricing.
Next generation, intelligent pricing technology
Intelligent pricing technology is capable of analysing hundreds of thousands of data sets to produce around 5,000 prices per second. Finance and category management teams have instant visibility of which lines require greater reductions and where prices can be maintained or even increased to maximise margins.
To take an example, the technology can pool similar products and customers using key attributes of these groups. It can minimise loss as well by automatically applying pricing rules to new additions without requiring the creation of specific pricing for them as they become available.
It can also check dates to prevent stale pricing from remaining in place after margins have changed. Intelligent pricing is able to set up future dated pricing in advance so that changes are applied when required. This means that teams are not scrambling at the last minute to try and ensure changes have been made correctly. The technology also enables wholesalers to forward buy when it is known that a price will change at some point in the future. Similarly, it can hold off until prices decline.
Simplifying rebate management
While rebates are essential, they take a huge amount of resource. And today’s market volatility is causing even more challenges when it comes to managing promotions and rebates. Given that promotions increase as inventory rises or sales decline, the current uncertainty and the risks of allowing stock to pile up makes them particularly significant during these challenging economic times.
Making sure rebates are charged out and paid correctly is something the industry is continuing to grapple with. On average, £2.65m is lost in unclaimed rebates every year and much of this is down to process and human error. Simple spreadsheet mistakes can result in damage to a supplier or customer relationship by asking for money that’s not owed, or rebates going unclaimed. This is money that wholesalers can’t afford to lose.
With automated intelligent pricing, wholesalers can reduce leakage by calculating and claiming or paying whenever the payment is due. It can also reduce the number of days rebates are outstanding by making a claim as soon as an amount is owed, improving vital cashflow.
This technology enables wholesalers to understand rebate revenue on a daily basis by recognising revenue as being earned rather than when it is received. Intelligent, real time pricing enables wholesalers to quickly, easily and accurately pass on supplier offers to customers. Meanwhile, accurate and detailed claim reports can improve collections by making it easier for suppliers to give approvals.
A more sophisticated, data-led strategy for pricing and rebate management
When pressures mount, there’s often a temptation to double down, maintain the status quo and just do more of it. But adding more bodies and spreadsheets to the pricing process is not the answer. Now is the time to rethink old ways of working and look to technology to help fix the problem.
As an essential part of the wholesale operation, pricing is due an upgrade. It’s time for the wholesale industry to retire the old price and rebate spreadsheets, regain lost productivity, improve cashflow and increase margins.
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