Tuesday, September 18, 2018

Sales and Distribution - Pricing

In this post, I would like to share thoughts on potential unethical and fraudulent practices in Pricing aspects w.r.t Sales & Distribution as one of the key important process out of 30+ key  key processes identified for this function. Pricing is one of the most important decision sales team has to take for end product or its spares or for rendering after sale services. We'll first understand how pricing is determined and then talk about potential unethical and fraudulent activities that can happen there


I. For the customised products/spares for corporate customers or export, pricing is governed by factors such as actual costing, contribution & degree of customisation and intense negotiations between company and such clients.


II. Pricing, in the case of end products/spares sold through channel partners like authorised distributors, dealers, retailers & service providers prices  lists  are arrived after summing up following parameters:-
  1. Updated input-landed material costs of bought out material, required to be further processed by manufacturing team
  2. Manufacturing variable costs like direct power, tools, consumables and labour
  3. Marketing variable costs like packing, outward freight & insurance  
  4. Channel partner wise margins
  5. Expected costs of material supply of essential spares & consumables for running or operation of the end product during the free  warranted period
  6. Expected Costs of labour for rendering free services during the  free warranted period 
  7. Minimum desired company margins to avoid negative contribution arrived as per following formula
  8. Taxes (state wise)
III. Further following aspects are also considered relevant:-
  1. Competitor’s pricing
  2. At what stage of product life cycle, currently the product is
  3. Market segment
  4. Statutory restrictions
  5. Market situation in terms of political & social aspects

Potential unethical & fraudulent activities
Following are some of the unethical & fraudulent activities that can happen and we should be aware of:-
  1. Not factoring all above aspects while arriving at price/MRP
  2. Factoring incorrect taxes
  3. Deliberately not updating input cost elements in the pricing software  , while inputs costs changes are shared by finance or materials or manufacturing teams periodically  
  4.  Configuring incorrect algorithms w.r.t pricing conditions in the customised software or ERP module  vis a vis above listed   aspects  
  5. Deliberately not configuring limited period , approved incentive scheme or pricing procedure in price computation software
  6. Conniving with competitors and pursuing cartel approach for pricing of the products/spares   and servicing
  7. Deliberately missing out review of the prices of fast moving items
  8. Suppressing highlighting of negative contribution items  from price review team
  9. Colluding & making unauthorised circular changes in price lists or & effective date by accessing software (to oblige some channel partners /customers) due to non -monitoring of  audit trail
  10. Not sharing  transparently with customer , updated price lists/MRP by the  channel partner
  11. Valuable comments are invited from sales & distribution team on the above


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