Looking at price optimization in CPG and retail
Ideally, strategic pricing should be an integral part of supply chain planning. However, we continue to see supply chains be completely blindsided by changes in pricing—and the impact of these changes, both positive and negative, on demand and production. In this blog, I’ll discuss the challenges and solutions around pricing optimization and planning to help you understand why spreadsheets and traditional software solutions are not an efficient way to address this problem.
The current landscape and the need for the right price optimization tools
Today, pricing is a highly labor-intensive, manual process. Mostly managed in spreadsheets, it carries a high risk of errors due to the manual work required. For example, retailers need to generate price-change events when competitor’s pricing data is loaded for analysis. They also need to collaborate with various stakeholders to constantly monitor and ensure that pricing stays within a tolerable range for the market. This requires a tremendous amount of flexibility in pricing models since changes will also need to be made to the business rules that drive pricing. Spreadsheets are not an efficient or secure way to handle this multidimensional and dynamic dataset that requires constant adjustments due to the multiple variables or constraints.
Retailers also have to manage broad product assortments with complex product relationships. Any inconsistency in brand, size, or quality pricing can damage the value of a retailer; therefore, the price optimization technology used must have the ability to maintain data at multiple levels of the merchandise and location hierarchies. For example, price optimization tools should allow retailers to add new locations, delete locations, add new merchandise, cannibalize merchandise, etc., on-the-fly.
Traditional pricing optimization tools, whether on-premise or cloud-based, are not built to handle this complexity with the required flexibility. They instead rely on scripting and software code optimization for each and every event change. They cannot handle multiple variables that drive pricing or scale with the complexity and size of your business. In other words, the current processes used, whether in spreadsheets or using these traditional tools, to manage the dynamic pricing and repricing to meet market demands and beat competition is not agile enough to win customers and be profitable across your brands and products.
Responding to vendor cost changes is also a difficult and manual process for almost all retailers. Retailers typically localize this problem instead of centrally managing it, but failure to properly respond can lead to lost sales and lost profit opportunities. The technology deployed to handle this problem should quickly allow, for example, pricing analysts to write and change business rules (formulas) and develop a framework to handle vendor cost changes, complex cross-product price rules, competitor pricing, margins, and legal minimums/maximums. Using a platform like Anaplan enables retailers and consumer packaged goods (CPG) companies to accurately manage pricing by allowing real-time action on these critical variations and adjustments.
CPG and retail experience is a must
Pricing optimization software vendors claiming to solve this problem need to have a significant amount of experience in the CPG and retail industries. Why? Because they then have experience in handling broad assortments with complex product relationships.
Anaplan works with several global organizations in the CPG and retail spaces, and has solved these planning problems for thousands of users and planners. Some of our notable customers include Diageo, Unilever, Kimberly Clark, P&G, Del Monte, and Reckitt Benckiser.
Learn more about how Anaplan can solve pricing optimization and other supply chain planning challenges with its Smart Business Platform. Also, you can learn how a large CPG company is using Zero-based budgeting to as a valuable framework for delivering and sustaining a step change in their cost base with Anaplan.