In general, the price management process consists of three major steps of the process as follow: (1) Planning, (2) Execution, (3) Analysis [36]. Now, company A just has the strategy for all divisions, instead of each product and each dealer's strategy, leading to the erosion in price and the lack of management effect to overall division profitability.
Figure 17: Redesign price management process (Author synthesis) Phase 1: Planning
The pricing management process begins with the company's business plan. The key outputs of this step are to identify the corporate targets, for example, sales turnover, profit margin by implementing plans for pricing, capacity, customer segment [37]. The first pricing step was to start to define pricing objectives and strategy, which is a strategic task [36]. There are three main components of the pricing planning, that is, pricing objectives and strategy, dealer margin, and pricing programs are gained.
First, the pricing objectives and strategy aim at the growth rate and profit target. In company A, a documented price strategy for products could not be founded due to the existence of strategy for overall division only. Second, the next step in planning is to establish and determine the margin
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profit for each dealer and product. It used to avoid the problem of disorientation of sales budget employed to support dealers, which is currently complicated, disoriented, and flexible, then consider as a negative effect on the profitability. In addition, it used to control the over range of support leading to a low price than the cost of goods sold. Third, the pricing program is a combination of activities to achieve pricing goals, such as an advertising program or pricing guidelines. Price guides consist of listing prices, market price, floor price, discount rules for customers segment, and pricing dealers.
Phase 2: Execution
The price execution concerns issuing pricing plans, for example, determining the target price, list price, and actual price after determining the discount rate and rebates [36]. The step is implemented by the sales force and the stage of negotiating with dealers [2]. In fact, it is so important to secure that the company achieves its objectives set in the prior. Furthermore, the price execution performing correctly during this stage will prevent revenue leakages [38]. In other words, with poor management, the company will receive the price difference and revenue leaks [36].
Step 4 - Initial price promotion plans: The step is to implement the pricing strategy by sales forces, which is reflected in promotion plans that include the price setting and discount rate for dealers. It requires analysis revenue, margin goals, and some factors from customers' demand, competitors to develop price policy and promotion. The step needs to guarantee that the price set is put in line with overall goals, and the change is the decline within each segment. Currently, there is a complex price structure that had applied to make the management difficult to control. Moreover, the different scheme used for different dealers within the same industry makes the situation complicated.
Step 5 - Checking C.O.I & approval process the proposal: Sales department of company A usually plays an important role with a delegation in price authority. This process is to check the proposal again in line up the strategy based on the complexity of analysis. There is some problem in this stage that dealers requested price discounts or sales promotion to sales forces to boost products to end-users, then sales force forward the request to upper management. It is necessary to full consideration for this proposal from the relevant department, which is the price committee
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members, including senior managers and board of directors [39]. Nevertheless, in some cases, the price committee function often has strained relations between upper management and sales force, due to the situation that the price committee needs time and appropriate evaluation to make a decision meanwhile sales forces believe in the best awareness to assess market conditions to secure business profits [38].
Step 6 - Official program to customers: From the price has been approved, dealers will receive an official sales agreement and then place an order or implement the promotion according to the terms and conditions stated. The step is a guarantee for the performance and agreement with dealers in the relationship from manufacturer and dealers, which is the process that makes sure to prevent company facing individual risk for personal gain [40].
The execution stage has general problems with revenue leaks. Normally, the main problem is losing control price deductions, leaving benefits for dealers [41]. However, the loss is sometimes underestimated as it impacts little into profits. Company A applies the rewards to dealers under certain conditions such as cash rebate, volume rebate, payment discounts, cooperative advertisement, and especially sell out support to boost products to end-users. This kind of support is not simply to follow, and control, particularly its implementation period, can last for weekly, monthly, quarterly, yearly, or specific time. With the situation of company A, the invoice price doesn’t represent all reductions to dealers. But the analysis for pocket price after all various kinds of the deduction is not significantly invested. The absence of analysis on the final price could cause to overrating the selling price, which misleads the approver committee to give more benefits to dealers and conduce to less profit or unprofitable prices.
Phase 3: Analysis
An analysis stage could cover potential problems that happened in the execution, also improve the price opportunities for the company. Normally, analysis involves the planning phase to simulate predictable price tendencies depending on business circumstances. The sales forces and marketing can adjust their price program according to the what-if analysis to estimate market demands.
In addition, the analysis aims to track price performance in the execution phase and send the warning to upper management derive from the analysis results. In some cases of irregularity
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happened, functional managers or board of directors can take immediate corrective actions suggestion to adjust the price performance.
There are three common analyses used to gain deep comprehension from transaction data:
Comparison Actual & Plan, Price Report, Cause Analysis [41,42,43] as various performance measurement tools detailed in Figure 18. The Operational Head agrees that monitoring price plan achievement is crucial for price management [3]. The company needs more analysis that conveys relevant information to upper management, besides, report and transfers the transparency about price plan achievement and provide information for the company to consider price execution [43].
The following figure identifies functions for several tools in analysis.
Price Control Function
Measurement system
Comparison of actual & plan
Monitoring of plan achievement Performance measurement
Price quality (undercutting price floor) Price quality (actual vs. planned prices) Price quality (price corridor coverage) Project monitoring
Management of changes Sales agreement monitoring Price increase monitoring Trend analyses
Price Report
Price reports
Monitoring of plan achievement Cockpits/dashboards
Cause Analysis
Price band
Detection of causes of variance for adjustment Price-waterfall analysis
Sales segment analysis Variance analysis Won-lost order analysis Check-lists
Fishbone diagram