B2B Wholesaler Fricke: Preventing ‘Logical Errors’ with New Pricing Tool
On November 11, 2019, Kai Ostendorf (photo) gave a lecture on pricing at the invitation of Professor Hans-Christian Riekhof at the PFH Private University of Göttingen. He provided an insight into the pricing of the agricultural machinery wholesaler in the B2B environment – before and after the implementation of a pricing tool. The following interview emerged from the discussions held there.
Prof. Riekhof: You have introduced a new IT-supported pricing tool together with an external provider for Wilhelm Fricke SE in Heeslingen near Bremen. One of the occasions was the considerable complexity of your business and thus also of pricing. How is this complexity expressed?
Kai Ostendorf: The complexity results from many factors. But primarily it was:
- the enormous number of items, which is also increasing exponentially (currently approx. 12 million)
- Expansion into new countries or markets and thus new market competitors
- increasing transparency through IoT
- more systematic processing of millions of data records to accelerate the pricing process.
Riekhof: How long did it take to select the pricing tool, i.e. how many providers did you compare here, and how quickly was the decision made internally?
Ostendorf: After previous market research, the pricing tool was selected from five providers over a period of four months.
Riekhof: How long did the project last from kick-off to practical implementation and use by the users, and what internal resources were used?
Ostendorf: The implementation extended over a period of seven months. In addition to about 1.5 employees from the pricing department who were fully involved in the implementation, resources from marketing and IT were also temporarily used to enable the connection to the ERP and PIM system.
The pricing tool is based on various pricing rules
Riekhof: What would you do differently today in retrospect in project execution?
Ostendorf: On the whole, we are very satisfied with the course of the project. Of course, there is a certain scope for improvements, what one would do differently in retrospect – but after the project one also has a different level of knowledge about the functional possibilities of the pricing tool. It should be mentioned here that one should look at as many implemented solutions as possible in the selection process in order to understand the system better in advance.
Riekhof: The pricing tool is based, as you explained in your lecture, on various pricing rules. How were these pricing rules created, how were they derived?
Ostendorf: The rules were largely created from the transfer of manual price calculation in the previous pricing dashboard. In addition, theoretical pricing approaches such as cost+, competitor pricing and value based pricing were used or adapted and adjusted to be able to respond to the conditions and requirements in the company and market.
Riekhof: Does the tool work with price-sales functions and price elasticities?
Ostendorf: Let me put it this way: Here too, we have found a way to be able to use the theory of the price-sales function and price elasticities in a modified form for pricing.
Riekhof: Are price classes provided in your pricing tool to create a kind of price architecture?
Ostendorf: If you mean by price classes that we have different articles with different quality levels for the same application, then corresponding logics are implemented in our pricing tool.
As a result, we now have fewer pricing complaints
Riekhof: The tool provides price suggestions, as you explained in your lecture. How are these suggestions decided, i.e. how are they “implemented”?
Ostendorf: The pricing managers in the headquarters verify the price suggestions, correct manually if necessary and then implement the new prices.
Riekhof: Prices can generally be aligned with internal costs, competition or the willingness of customers to pay. What role do these three factors play in your pricing tool? What is the relationship between these sizes?
Ostendorf: All three factors are taken into account in the price calculation, although the willingness of customers to pay currently plays a rather subordinate role. The background is that the products we trade as wholesalers are largely also available from the competition. The scope for the willingness of customers to pay is correspondingly smaller than for example with the iPhone etc.
Riekhof: You have stated that one of the effects of the new pricing tool is that there are fewer pricing complaints. What do you mean by that?
Ostendorf: Thanks to the multitude of rules, we are able to avoid “logical errors” on the one hand. An example: the replica is more expensive than the original or the glove in size S is more expensive than size XL. On the other hand, “critical or competitive” articles are presented to us more transparently, so that prices can be checked more frequently.
Riekhof: You have specialized in pricing during your career. Would you recommend such a specialization to our students at PFH Göttingen? Is this a promising orientation within the framework of a business administration degree?
Ostendorf: Definitely! Even after a total of five years as “Head of Pricing”, split between two companies, the job not only brings me joy, but also generally offers a very good career perspective. Because pricing specialists are in demand more than ever.
Photo: Fricke Group
More information about Fricke:
www.fricke.de
