Food Dive: How companies can manage labor-intensive price changes

By Daniel Wolf

September 1, 2017

Daniel Wolf, a strategic consultant on the PROS Food and Consumables industry team, explains how manufacturers can create the personalized, frictionless buying experiences their customers demand.

Today’s workers are more effective and productive than past generations, thanks to the evolution of technology. As the great differentiator, technology is changing the way products and services are bought and sold, including those in the food and consumables industry. How customers interact with the companies they do business with has also changed dramatically, and organizations are looking to create the personalized, frictionless buying experiences their customers are demanding.

One of the technologies spurring this transformation to modern commerce is dynamic pricing science, which analyzes hundreds of real-time data points. It also assesses factors such as raw commodity pricing or seasonal events, like the upcoming Labor Day holiday, which can trigger demand for a particular product.

As companies seek to manage pricing in this new digital age, they must adapt to be successful. While foodservice pricing teams were early beneficiaries of workplace technology, they must adopt more sophisticated solutions to help them remain competitive. Spreadsheet programs and off-the-shelf database software helped many of these organizations manage their businesses. But in the era of modern commerce, these off-the-shelf solutions can’t keep up with today’s marketplace demands.

Here are two areas where food and consumables manufacturers can optimize the pricing process and enable their companies to modernize their business practices.

Setting and managing distributor list prices

Manufacturers have traditionally used spreadsheet programs to set list prices for distributors. Even with a spreadsheet ninja on your team, manual list-price setting is challenging. With an exponential number of lines of data generated for hundreds of distributors at the corporate and local level, it can quickly become a time-consuming, error-prone process.

As technology continues to advance, pricing teams have new solutions that create efficiencies and reduce the potential for error. Consider the following recommendations to improve the distributor list-price setting process:

• Perfect your formulas – Create formulas and assign them to the different types of price changes that your team must manage.
• Fine tune the review process – Develop methodologies that help you accurately evaluate the impact of price changes on profitability by ensuring review of the correct data elements.
• Get automated – Automation requires a step beyond the typical spreadsheet technology. Look for solutions that let you introduce automation and schedule price recalculations. The right pricing platform will also compare how automated price calculations can change based on situational exceptions.

Commodity or index-based price changes

Another area of time and resource-intensive price change management centers on commodity or index-based price changes. Staying on top of your price change process is critical to the bottom line. A modern commerce strategy will alleviate errors caused by human intervention and deliver a pricing strategy that is driven by machine-learning algorithms and dynamic science pricing.

Let’s take a look at the issues surrounding pricing agreement price changes without a modern commerce approach:

• Commodity changes – Some agreements allow price changes based on commodity values. To protect margins, pricing teams must quickly input, recalculate and submit values on highly volatile commodities. Depending on the specific commodity value, some of these can be extremely volatile. Think about how extensive the lost margin dollars could be by not reacting immediately to cost/commodity changes while like Labor Day backyard barbecues drive increased volumes.

• Escalator programs – Escalator programs can apply to different types of price agreements, and they aren’t always fixed throughout the life of the contract. Let’s look at an example. A manufacturer issues a 12-month agreement for 1,000 cases of product at $25 per case. Under the terms of the escalator program, the price recalculates if the index value increases by more than five percent – but only after the first three months of the agreement. Now, imagine this example at play with hundreds or thousands of price agreements. Even the most capable employees using the best spreadsheet or off-the-shelf software are likely no match for the level of complexity at play. Dynamic pricing science and machine learning represent a manufacturer’s best defense when it comes to managing these escalator programs. Automation limits human error and improves return on investment.

• Scheduled changes – Quarterly or annual price changes present a different set of challenges compared with commodity-based or escalator programs. These scheduled change programs typically involve consideration of various exceptions such as time, geography, the margin or competitiveness of a product, and customer expectations.

The time-sensitive characteristics of these types of pricing agreements demand ongoing monitoring and intervention at a rate that becomes impractical for most people and off-the-shelf software. Advanced, automated pricing platforms can easily implement correct, on-time price changes and limit the risk of costly errors. Without automation, these types of changes can take weeks or months to process.

Start thinking about your Labor Day resolutions now

Food manufacturers that leverage dynamic pricing solutions can quickly respond to changes and easily optimize pricing. As you gear up for the post-holiday rush into fall, think about what you and your company can do to better satisfy the requirements of your customers, and what drives revenue for your own organization’s profitable growth.