Overview (Optimization - List Price)
- Ondřej Tesař
Purpose
List Price Optimization is an accelerator designed to optimize the list prices, typically for manufacturers or distributors, or any B2B company. This accelerator enables businesses to position list prices based on the following criteria:
Targeting a margin rate increase or maximizing revenue/profit if price elasticity is enabled
Allocating List Price increase, either overall or by product group
Aligning products based on attributes (such as brand, private label vs. premium…)
Setting limits on list price changes
Setting lower and upper bound for List Price
Following cost increases and/or decreases
Outputs
The output of the optimization model are recommendations for list prices by product and an assessment of the impact at the product level, product and a customer level. A set of dashboards is provided to allow you to review and assess the outputs using charts and tables which include the recommended list price, expected revenue, margin, and more.
These list prices are displayed in the interface and can be accessed throughout the Pricefx solution or queried by external systems through APIs. Strategy Designer can also be easily configured to use this optimized price in Price Lists or LPG.
Approach
The optimization relies on a pricing model to define the pricing strategy and expected targets. For that a simplified waterfall is used to model the impact on the revenue and profit. Using past transactions as a start point, there are several steps defined between List Price, Revenue and Profit:
List Price is the starting point. “Revenue at List Price” corresponds to the list price multiplied by the quantity.
Discounts correspond to discounts that apply to the list price. This amount is converted to a discount rate (by the product and customer level) and the same discount rate is applied to the recommended list price to assess the impact.
On Invoice Adjustment is a fixed amount added to the discount to calculate the Invoiced Revenue. (Note: VAT is not used in the modeling.)
Rebates correspond to the rebates that apply to the revenue. This amount is converted to a rebate rate (by the product group and customer level) and the same rebate rate is applied to assess the impact on the profit.
Off Invoice Adjustment is a fixed amount added to the rebates to calculate the Net Revenue.
Limitations
Product scope – The accelerator relies on past transactions, so a product with no sales will not be part of the optimization.
No predefined extension point – There is no out-of-the-box extension point defined for now. If you intend to add specific features, custom code should be written. (But then the accelerator becomes specific and it cannot be updated without extra effort to port those modifications.) Do not hesitate to report specific requirements and possible extension points to Pricefx.
Data requirements – See Data Requirements (Optimization - List Price).