More Reasons to Implement an Org-Wide Pricing Strategy

December 15th, 2006 |   Send this article to a friend!

A recent encounter that my current client experienced exemplifies why any corporation of global stature should implement an organized pricing policy.

It’s common in the industry my client serves to contact past customers to “borrow” stocked parts previously sold to them to service another customer in an emergency situation.  In this example, my client received an order from Customer A for an emergency part.  If my client were to go through the normal SCM channels the part would never make it in time for Customer A. 

As a last resort my client decided to research sales made for this same part and discovered that they sold this exact part to Customer B in recent months.  They contacted Customer B and learned that this part was still in stock.  Customer B allowed my client to borrow this part for the emergency situation as long as it was replaced within an acceptable timeframe.

Now with an available part on-hand they could provide the emergency part to Customer A.  Aside from any expediting fees that Customer A is charged, one would think that the price of this part would be the same as sold to Customer B. 

However, this was not the case.  The salesman at the time figured he could gain a higher margin on Customer A and take advantage of the emergency situation.  With no pricing policies in place and no oversight to the situation, the salesman was able to make the call and increase the price by a substantial amount.

The salesman was aware that Customer A and B were both generally in the same industry, but they were also located in different countries, which he thought would minimize the risk of the two finding out.  And so what if they were?  When was the last time you saw the price of a spare part in a company’s financial statement?

While all of this was true, what the salesman didn’t know was that Customer B was a sister company of Customer A.  Although Customer A had already placed an order from my client, they were still investigating other options they had in getting the emergency part as quickly as possible.  So, of course, Customer A decided to contact their sister company, Customer B, to see if they had a similar part in stock.  Customer A was thrilled to hear that Customer B had the part, but through the course of their discussion, discovered that they were substantially over charged for the part.  They were more shocked when they discovered that they both purchased the part from the same vendor – my client.

Upset with the situation, Customer A calls my client to find out why there was such a drastic difference in the price.  Of course, the salesman is unable to explain the situation, and as result Customer A cancels their order and instead borrows the part from their sister company Customer B.  Also disgusted with the situation, Customer B cancels their replacement order and decides to go to another vendor.

Because of poor policy and lack of controls in their systems, the salesman was able to make this price change without any oversight.  What was intended to be a several thousand dollar gain resulted in a several million dollar loss – not to mention the lost opportunities of any future sales to Customers A and B - which I don’t even want to think about how much that adds up to.  A proper pricing policy and a system, such as Oracle Advanced Pricing, with the necessary controls to enforce this policy would have ultimately prevented this situation.

Click here to learn more on the importance of implementing a solid pricing policy.

---

Mr. Thompson is a Senior Oracle Applications Consultant with Lexerd Group Consulting. Visit www.LexerdGroup.com to find out more about our firm.

Interested in hosting your own blog? Lexerd Group’s Internet Services division provides specialized blog hosting services that utilizes the Wordpress blogging platform. Visit http://www.lexerdgroup.com/blog-yourself/ for more details.

Entry Filed under: General, Advanced Pricing