Pricing and Discounting in ERP

ERP pricing implementation is not as easy. It brings forth many challenges. Some of them include managing and integrating vast amounts of pricing data, ensuring pricing consistency across various platforms, keeping pricing information up-to-date in real time, staying compliant with industry regulations, and so on. The list goes on. When it comes to pricing, ERP systems have several business rules at various levels. And understanding the nuances of these layers is crucial for pricing to work as your expectations.

When we talk about ERP pricing implementation, it helps in supporting complex pricing structures and provides the users with the most accurate experiences. It creates a seamless experience between operations and customer experiences. Enabling ERP pricing implementation means customers are receiving the most accurate pricing data that helps them with their purchase decisions. Businesses also gain the freedom to tier their pricing and discounts catered to certain customers and manage their sales. This blog delves into the top 10 ERP pricing implementation considerations. 

1. Product Portfolio

While ERP pricing implementation, one of the critical factors that can significantly impact the integration is the intricacy of your product portfolio. For example, a company will face multiple challenges if it has a diverse product range. The need for multiple pricing tiers arises when dealing with various products, especially customizable ones. In this case, the company will have to publish the pricing in the market configure pricing in the ERP system, and e-commerce pricing. The result will be a complex web of pricing structures, leading to confusion in customer-facing situations.

The customer’s ordering experience will become a puzzle. This is because pricing depends on the channel through which the opportunity flows into the system. This will create challenges in managing repeat orders and introduce manual processes, making consistency a rare commodity. The lesson learned here is clear. When navigating the ERP pricing implementation, it’s crucial to streamline and simplify your product portfolio.

Strategies to Simplify Product Portfolios

• Assess the performance of each product, identify the top-performing products, and consider phasing out those that contribute minimally to revenue.
• Concentrate on your core products that align with your brand identity and meet the primary needs of your target audience.
• Identify and eliminate redundant or overlapping products that serve similar purposes. 
• Listen to customer feedback and analyze demand patterns. Use this information to prioritize products that are in high demand.
• Regularly review the lifecycle of each product. Consider discontinuing products that are at the end of their lifecycle and invest in innovation for new ones.
• Create bundled offerings or packages that group related products together. This not only simplifies the purchasing decision for customers but also helps in promoting specific product combinations.

2. Pricing Dynamics

When we talk about pricing dynamics, several factors come into play, each influencing the cost structure and strategies employed by distributors and manufacturers. Understanding and navigating these diverse pricing dynamics are crucial during ERP pricing implementation. This understanding enables effective configuration of the ERP systems to accommodate different pricing structures. It also helps align them with the specific needs of the business. It also ensures pricing data accuracy and consistency within the ERP system. Businesses can adopt more customer-centric pricing strategies when they understand the pricing dynamics properly. They stay adaptable to market changes or shifts in demands and competition.

Key Dimensions in the Pricing Equation

• Base Pricing. The foundation of any pricing strategy is the base pricing set by the distributor or manufacturer. This serves as the initial benchmark for products, reflecting their inherent value and influencing subsequent pricing adjustments.
  

• Warehouse-Based Pricing. Introducing another layer of complexity, warehouse-based pricing depends on the geographical location of a warehouse. The same product may be priced differently based on the region or country where the warehouse is situated. This dynamic is driven by logistical considerations, regional cost variations, and market demands specific to each location.
  

• Customer-Based Pricing. Adopting a customer-based approach, products are priced differently depending on the target audience. For retail customers, prices factor in elements like demand, competition, and perceived value for end consumers. Distribution customers, purchasing in bulk, face a different pricing structure. Manufacturers or distributors need to consider providing margins to accommodate the larger volumes bought by distributors, aligning pricing strategies with the distinct needs and purchasing behaviors of various customer segments.
  

• Seasonal or Event-Based Pricing. Introducing a temporal dimension to the pricing equation, seasonal or event-based pricing strategies mean products may be priced differently during specific seasons, festivals, or events. This reflects the fluctuating demand and market dynamics tied to these timeframes.
  

3. Forms of Discounting

Discounting serves as a strategic layer atop the pricing structure, offering businesses a nuanced approach to adjust product costs and respond to various market dynamics. The ways that different forms of discounting affect the ERP pricing implementation are similar to how the pricing dynamics affect it. But there are some additions to it. Understanding this concept also helps businesses optimize costs in response to regional market demands. It helps in customer segmentation for more personalized and effective pricing. 

Key Dimensions in the Discounting Framework

• Base Discount. Applying a percentage reduction to the foundational base pricing, the base discount serves as a dynamic tool. It allows businesses to maintain a clear baseline for product values while introducing flexibility and responsiveness to market conditions, ensuring competitiveness without compromising perceived product value.
  

• Location-Based Discounts. Providing an additional dimension to the discounting framework, location-based discounts optimize costs in response to regional market demands. These discounts tailor pricing strategies to specific warehouse locations, addressing pricing variations influenced by logistical, operational, or market-specific considerations.
  

• Customer-Based Discounts. Extending adaptability to different customer segments, customer-based discounts cater to the unique needs of retail and distribution customers. This approach allows businesses to foster stronger relationships, enhance market penetration, and customize pricing for individual and bulk purchases.
  

• Event-Based Discounts. Tied to seasons, festivals, or specific occasions, event-based discounts introduce a time-sensitive element. This dynamic enables businesses to align pricing strategies with the pulse of the market during specific periods, providing the agility to respond effectively to changing market dynamics.
  

4. Distribution Channels

Industries operating through multiple distribution channels, involving layers like manufacturers, distributors, and retailers, face unique challenges in devising pricing strategies. Each channel requires tailored pricing structures to address the distinct needs of intermediaries and end customers. This complexity is heightened without a unified pricing management system, making navigating and managing diverse pricing models effectively challenging. This disparity necessitates centralized control for effective management, especially considering the underlying thread of inventory that ties everything together. 

5. Regulatory Challenges

Companies in sectors like healthcare, finance, or pharmaceuticals are bound by stringent regulations that significantly influence pricing strategies. Regulatory requirements may demand transparency in pricing, impose controls on pricing structures, or mandate compliance with specific pricing guidelines. Navigating these regulatory intricacies while maintaining competitive pricing adds complexity for businesses. As businesses strive for a unified and consistent pricing approach, navigating the regulatory landscape becomes critical to successful ERP pricing implementation.

6. Source of Truth

Ensuring a seamless ERP pricing implementation hinges on having a single, authoritative source of truth for pricing data. The ERP system emerges as this bedrock, embodying the most current and accurate pricing information. An architectural approach is often advocated that minimizes manual touches and ensures the fewest number of interactions. The crux lies in understanding the internal implications and how the architecture aligns with customer needs.

Despite potential organizational resistance, establishing the ERP as the unambiguous source of truth is the key to internal and external satisfaction. The critical role of the ERP system in pricing integration is magnified, particularly in contrast to the pitfalls of relying on third-party systems or maintaining pricing information in disparate locations. This narrative reinforces the need for a centralized control mechanism, emphasizing the ERP as the linchpin for consistent and accurate pricing across diverse channels.

7. Data Silos

A critical factor demanding attention is the emergence of data silos when utilizing pricing software or external tools, especially in contexts involving dynamic pricing or intricate formulas. A centralized source of truth is of utmost importance to prevent the potential pitfalls of neglecting consistent auditing within the ERP. The pricing information residing in various channels such as published pricing in the market, ERP-configured pricing, and e-commerce pricing, introduces challenges in maintaining consistency and accuracy, particularly when dealing with repeat orders from different channels.

8. Complexity of CPQ

Integrating CPQ systems requires extensive product details, customer information, and pricing data. Notably, sales and marketing teams resist direct engagement with ERP systems for quoting, further complicating the integration process. The inherent complexity of CPQ systems demands meticulous integration work, creating two-way loops within the ERP architecture. This further underscores the critical importance of addressing the challenges posed by CPQ integration to ensure a streamlined and efficient ERP implementation.

Some of these complexities involve data inconsistencies, the need to handle things externally, and the importance of having a structured pricing process. While there may be differences in opinions regarding the integration’s feasibility, the consensus is that maintaining a clear master-slave relationship, with the ERP system being the master, can help ensure successful ERP pricing implementation.

9. Two-way Integration

The criticality of seamless connectivity between CPQ systems and ERP involves a sophisticated two-way data flow mechanism where pricing details undergo dynamic changes based on evolving product configurations and customer requirements. Failure to consistently audit and manually check the ERP system introduces a cascade of problems, with a specific example illustrating challenges related to published pricing, ERP-configured pricing, and e-commerce pricing. The complexity arises when determining how to price an order, depending on the channel through which the opportunity is initiated. This manual process can lead to discrepancies, especially in repeat orders, creating a compelling argument for centralizing data within the ERP system.

10. Purchase Price

Navigating the landscape of ERP pricing implementation involves not only addressing pricing complexities on the sales side but also delving into the often-overlooked realm of the purchase price. The interconnected nature of the buying and selling sides of the business is often emphasized, stressing the importance of aligning these aspects to ensure overall consistency and efficiency. This advocates for a centralized control system within the ERP, despite potential challenges in getting the entire organization on the same page. It argues that treating the ERP as the source of truth for pricing data, even when residing in different channels, leads to better internal and external service in the long run.

Conclusion

In conclusion, the blog stresses the need for businesses to address the challenges of ERP pricing implementation and advocates for centralized pricing data to mitigate these challenges. It emphasizes the impact of discounting forms, the intricacies of managing distribution channels, and the influence of regulatory requirements on pricing strategies. The central theme revolves around establishing the ERP system as the authoritative source of truth for pricing data. Despite potential resistance, the blog asserts that making the ERP the linchpin for consistent and accurate pricing across diverse channels is vital for internal and external satisfaction. It advocates for a centralized control mechanism within the ERP, underscoring its critical role in successful pricing integration.

Moreover, if you are contemplating ERP pricing implementation, it is essential to consider the factors that may impact your outcomes in the future. Understanding the dynamics of pricing and discounting adds another layer of insight to inform this decision-making process. Armed with this knowledge, you’ll be better equipped to engage in a meaningful and informed discussion with independent ERP consultants who serve as subject matter experts in this field. Collaborating with experienced ERP consultants becomes a strategic step in optimizing your pricing strategies and fostering a streamlined integration that stands the test of time.

FAQs

There are a lot of different ways of implementing pricing and discounting in ERP. But there’s always a debate in terms of which is the right system to implement. When we look at pricing, there are always going to be layers and layers of pricing rules. When we look across the industry, some people implement static pricing, which refers to setting prices periodically. It is often based on cost movements. 

Secondly, there’s dynamic pricing, which means that prices can change frequently, sometimes even daily. It is to maximize profit or competitiveness like in e-commerce businesses. Lastly, there’s commodity-based pricing, which industries use where the cost of materials or goods fluctuates. Most of the time, the pricing is based on standard costs, which are generally planned costs that can be updated at periodic intervals. 

This ignites the debate on where pricing should be managed—within the ERP system or externally. Businesses that lack control and consistency in their pricing strategies often face challenges such as maintaining complex distribution channels, tracking discounts and promotions, and handling overtime maintenance. These challenges call for centralized control over pricing offered by an ERP system. 

Using an ERP system also eliminates the need for manual pricing decisions. It automates pricing calculations based on predefined rules, reducing errors and saving time. Many industries still resist adopting pricing and discounting processes, despite the advantages that ERP brings to the table. In this blog, we will discuss the top 10 best practices for ERP pricing and discounting processes that will help overcome this resistance. 

1. Pricing Simplification

When dealing with resistance from team members or departments, it’s crucial to ask fundamental questions about the complexity of the existing pricing model. The first question is whether the complexity is truly necessary or if it has evolved without clear justification. Complex pricing models can lead to numerous challenges, such as incorrect order bookings, increased potential for human errors, and data entry discrepancies. Misaligned data between the teams responsible for pricing and those responsible for order entry can have significant consequences. It can also impact margins, financial reporting, and overall revenue accuracy.

Simplifying the pricing model leads to a more streamlined and manageable pricing structure, which not only reduces the chances of errors but also enhances overall efficiency. One way to achieve simplification is by categorizing customers, products, or pricing levels and starting with a broader, more straightforward structure. Then, refinements and adjustments can be made as needed.

2. Prevent Human Errors

When different teams are responsible for pricing and discounting data entry, it increases the risk of mistakes and inconsistencies in the pricing process. These errors can have far-reaching consequences, including incorrect pricing, impacting the organization’s profitability and customer satisfaction. Managing pricing and discounting within the ERP system significantly reduces the likelihood of such errors and discrepancies.

Human errors, such as typographical mistakes, miscalculations, or misinterpretations of pricing rules, can result in incorrect pricing on sales orders or invoices. These discrepancies not only impact the immediate transaction but can have a cascading effect, affecting the company’s financial statements and reporting. Maintaining pricing and discounting within the ERP system can mitigate these risks by providing a centralized platform where pricing data can be controlled, validated, and consistently applied. Additionally, automation and validation rules can help catch and prevent errors, ensuring that pricing remains accurate.

3. Tackle Data Entry Challenges

Managing pricing and discounting outside the ERP system presents significant challenges in terms of data entry accuracy and consistency. It’s often difficult to convince organizations to maintain pricing and discounting within the ERP system, and this reluctance can lead to various implications, especially when different teams are involved in the process.  Discrepancies may emerge due to the lack of a centralized control mechanism. Various teams may have their interpretations and ways of entering pricing data, leading to inconsistencies and errors.

These discrepancies can not only affect day-to-day operations but can also have broader implications, impacting an organization’s financial statements, profitability, and customer satisfaction. The risk of data entry errors looms large, as any disconnect between those responsible for setting pricing and those managing data entry leaves room for mistakes, leading to many issues. Ultimately, the integrity and accuracy of data become challenging to maintain. 

4. Maintain Consistency in Financial Data

When pricing and discounting are managed outside the ERP system, several challenges occur. Incorrect pricing, whether due to complexity or siloed departments, can have a far-reaching impact on a business. Even minor pricing errors can accumulate over time, resulting in inaccuracies in financial statements. A pricing structure that is too complex or fragmented can lead to errors in booking orders, creating discrepancies that accumulate over time.

These discrepancies ultimately affect an organization’s profit margins, financial reporting, and the general ledger. Maintaining pricing within the ERP system is the solution to mitigate these challenges. By doing so, organizations can ensure that their financial data remains consistent and accurate. This approach reduces the chances of human errors and ensures that data integrity is maintained throughout the organization.

5. Encourage a Step Back

Reconsider your pricing strategy and its complexity. Also, discuss the benefits of broad pricing rules that can later be refined. Embracing an ERP system for pricing can be challenging, but it’s essential to understand the implications of your pricing strategy and the advantages of a more flexible approach. By asking questions like, “Does it need to be this complex?” and “Why is it so complicated?” organizations can prompt a critical evaluation of their pricing practices. This questioning can lead to a realization that simplification is possible and can result in more straightforward, manageable pricing structures.

6. Automation and Integration

One compelling argument for maintaining pricing and discounting within the ERP is the automation and integration benefits it offers. When pricing rules are established within the ERP system, it can automatically compute prices based on various parameters such as customer, product, quantity, and more. This high level of automation saves both time and effort while also significantly reducing the risk of manual errors. ERP systems are also well-suited for seamless integration with other business processes, guaranteeing the consistent and accurate dissemination of pricing data throughout the organization. This means that prices are calculated consistently, from sales orders to invoices and across various touchpoints within the organization, ensuring that everyone works with the same pricing data. 

7. Integration Requirements

When businesses opt for pricing and discounting outside of their ERP systems, it often necessitates developing complex data flows and integrations to ensure that pricing data is transferred accurately between various systems and departments. This is because pricing is closely tied to other processes, such as order booking and financial reporting, and ensuring consistency and accuracy in data flows becomes crucial. Without proper integration, data discrepancies can arise, leading to errors in pricing and resulting in financial and operational complications.

Furthermore, maintaining data accuracy for pricing is essential, irrespective of whether pricing and discounting is managed within or outside the ERP. Accurate pricing data is the foundation of fair transactions and profit margins. Inaccuracies can lead to errors in customer orders and invoicing, which can erode customer trust and impact financial performance. By emphasizing the need for data accuracy, it becomes evident that pricing data integrity is vital, and this can best be achieved by keeping pricing within the ERP system. 

8. ERP User Interface Simplification

Customizing the user interface of an ERP system can be a powerful solution for making it more accessible to marketers. By customizing the user interface, it is possible to streamline and simplify the user experience. It makes it more user-friendly. This customization can involve creating simplified screens, reducing the number of fields, and focusing on the essential information required for pricing decisions. By doing so, marketers and other users can interact with the ERP system more comfortably. The ERP interface can be tailored to their specific needs and preferences.

9. Encourage Collaboration

To address the reluctance of some departments and promote collaboration, organizations should encourage a cross-functional approach to pricing. This emphasizes shared responsibility for data accuracy. In this context, it’s vital to establish common ground and understanding of the pricing process across departments. Instead of viewing pricing management as the sole responsibility of one department, organizations should highlight that pricing impacts multiple aspects of the business. This may including sales, finance, and marketing. 

By fostering collaboration, various teams can contribute their expertise and insights to create more effective and well-rounded pricing strategies. Additionally, collaboration helps streamline the flow of information and communication. When multiple departments collaborate, it becomes easier to maintain data accuracy and ensure pricing decisions are based on up-to-date and consistent information. 

10. Workflow and Approval Improvements

In the context of streamlining pricing and discounting changes, improving workflow and approval processes within the ERP is critical. Addressing resistance by educating stakeholders on the ERP’s architecture, data flows, and integration challenges, making it clear that maintaining pricing in the ERP is not as daunting as it may seem is important. By improving workflow and approval processes, organizations can create efficient systems for managing pricing changes. This can significantly reduce the complexities associated with pricing management while ensuring data accuracy and streamlined processes within the ERP.

Conclusion

In conclusion, the blog dives into the details of best practices for pricing and discounting in ERP. Mainly highlighting the ongoing debate regarding where these critical processes should be managed – within an ERP system or externally. It emphasizes that pricing complexity often leads to multiple layers of rules. The blog discusses three primary pricing approaches: static pricing, dynamic pricing, and commodity-based pricing. While acknowledging the diversity of preferences, it emphasizes the importance of centralizing control over pricing within an ERP system.

The blog also talks about simplifying pricing models, preventing human errors and discrepancies, and tackling data entry challenges. All of which can adversely impact profit margins and financial reporting when pricing is managed externally. It further encourages a step back to rethink pricing strategies and adopt broader rules that can later be refined. Automation, integration, and improving the ERP user interface are identified as crucial aspects that can help businesses create a compelling case for pricing within the ERP system. The blog also highlights the importance of encouraging department collaboration and making workflow and approval processes more efficient. It also outlines a set of best practices to overcome resistance and successfully manage pricing and discounting processes within an ERP system. This list aims to offer potential options for your further evaluation with independent ERP consultants.

FAQs