Nothing is free in today's business world, but cutting costs can increase your profits enough that your business feels the success. Using an effective Enterprise Resource Planning (ERP) system can help you reduce your revenue leakages.
The 4Ps of marketing are i.e. Product, Place, Price and Promotions, these are the foundations of any marketing strategy. Amongst these 4 four, Pricing plays a critical role in maximizing your sales and profitability. However companies struggle to set and execute prices optimally due to various reasons. But the two main reasons are Firstly, the oraganisations lack the necessary tools, to use the relevant information to set prices. Secondly, it is difficult to see the impact of pricing on the budgets. The most important of all is the lack of effective controls, which makes the implementation of pricing difficult.
An ERP helps you to address these issues effectively. ERP Pricing supports the simple as well as the complex pricing structures. This includes managing the flow from planning stage and calculating the prices through a follow up on the sales statistics. It has many powerful features which help in managing the pricing lifecycle i.e. price budgeting, price planning, price calculation and execution, efficiently. Also an ERP helps you to eliminate a lot of manual work. Besides this, it supports a highly automated process that helps minimizing manual input and costs of order entry, billing and credit note handling pertaining to pricing information.
Let us look at some of these features
- Price budgeting: any price reductions from current prices impact projected revenues and profitability. Best-in-class organizations budget for these reductions in their financial budgets and allocated the same to the sales groups.
a) Budget Allocations: an ERP facilitates the process of budgeting and allocation. This function can be used to define the processing options, for each user in price planning, which is linked to the budgets. This ensure representation of all stakeholders in price planning.
b) Budget Monitoring: to monitor budget overruns you can use an approval procedure, which enables you to monitor the effects of the price changes on different budgets. This can be restricted to authorized persons only.
- Price Planning: once the budgets are allocated an ERP facilitates price planning through various price calculation methods like :
a) Rule-based markdowns: an ERP provides a creative business rule, which helps in arriving at new prices by applying mark down based on costs, volumes, geography, product family etc.
b) Promotions: The validity date of the price list can be used to plan price changes and time-limited sales campaigns in advance. This can prove helpful in follow up of sales statistics.
c) Manual pricing: ERP also allows manual price changes in price lists and sales orders if permitted by the system parameters.
d) Cost based pricing: sales pricing is integrated with sales costing which picks up product costs from the costing module. Based on mark ups the system and allows for various other sales mark ups. The ERP then calculates sales prices by adding a predefined margin to generate a price list.
e) Market driven pricing: based on competitor’s price lists, the ERP can apply mark ups or mark downs and devise a competitive pricing strategy.
f) Graduated Pricing: an ERP system allows linking of prices with volumes which makes the calculation of order value easy. An automated workflow can be created between different departments for review and approvals of price plans, so less of superfluous communication and follow ups.
- Price list administration: prices generated through price budgeting and price planning process are administered in the ERP through price lists.
a) Price List Management: there are provisions in the system to make changes in the price list, these can be validated for a specific period, or adhoc changes can be made. Specific changes pertaining to customer groups, sales channels, specific customers can also be incorporated in it at any point of time. Price list can be revised with respect to base price by applying mark ups or mark downs. Changes in price list can only be done by those who are authorized. Prices from the price list are picked up for making quotations and sales order, here no amendments in the price can be made. Some ERPs also provide workflows when changes to list price have to be authorized under special circumstances.