Tag: price control

Why should we have Data Driven Approach

by admin

Data is a collection of numbers, labels, or symbols, collected through observation. It can be qualitative or quantitative variables about one or more persons or objects. When there is no structure to data, nobody can make meaning out of the numbers and names. Data organized in rows and columns carry specific meaning. A commodity company with a data driven approach takes decisions basis the data. Its transition to a brand will be faster than one which ignores data, other factors being constant.

To look at data and to make meaning out of it needs focus. It has to be inculcated as a culture in the company. It is necessary that all decisions are based on a data driven approach. All reviews must be backed with data.

Types of data

Types of data available with the company fall in three categories:

  • System data: This includes data registered in company’s system through a standard software. Chances of error in data due to human estimation is minimal. A few examples of system data are sales volumes of customers, number of outlets selling our brand, purchase frequency of the customers, company’s production figures, number of quality complaints logged, etc. Company’s ERP system captures this data from the invoices.
  • Market data: This includes data where the employees make estimates of numbers like competitor brands’ sales volume or shop share, retailers profile, number of outlets selling competition brands, production volumes of competition, quality of the competition brands, competition pricing, etc. are examples where of market data where the employees make estimate basis the interaction of people operating in the market. This is often accepted with a pinch of salt by the management as the biases of the sales person creep into this data collection.
  • Agency data: This includes data collected by agencies either independently or for a commodity company when asked to do so. Data collection happens either by sample survey of consumers or through interaction of the trade partners/ influencers. Changes in consumers’ consumption behavior, growth trend of the industry, market share of the various brands, media consumption trend of the consumers, etc. are examples of agency data. This data is considered more credible by the management as there are no biases from the market research company.

Benefits of Data Driven Approach

There are several decisions which can be taken with more diligence if data is looked closely. They will yield better results. A few examples are below:

  1. Sales planning- If the sales team closely follows the purchase frequency of trade partners/ consumers, seasonality of the product and recent growth trends, it will be able to predict the sales forecast with more accuracy.
  2. Trade scheme devising- Last scheme’s achievement, timing of the last scheme, type of scheme influencing various types of trade partners, are important parameters, which if tracked will help in devising the next schemes. Often companies do not evaluate the scheme’s performance after scheme closure, thereby not learning from the failures.
  3. Pricing decision- The pricing strategy of a commodity company will be successful only if it has information of the price waterfall existing in the market vis-à-vis competition or various element of the value chain.
  4. New product launch or capacity expansion- Companies should invest in new production facilities or storage facilities only if it has concrete information on the existing market size and competition market share. Basis this information only, the company will be able to decide the positioning strategy for its product. Similarly, when coming out with new products, the company must have all market data including consumers’ changing consumption trends.
  5. Advertising strategy- An important input is the media consumption data of the target audience. This data driven approach helps commodity company strategize media campaign diligently.
Importance of Data Driven Approach
Importance of Data Driven Approach

In a nutshell, data driven approach avoids decisions being taken on a gut by an individual. In a way, the decision maker takes the responsibility of the decision.

Market Price Control

by admin

One of the key requirements of the commodity companies is to have effective market price control. Once the pricing strategy is decided, next step is the control. When there is no price uniformity in the market, doubts start creeping in on the business practices of the company and ultimately the quality of the product. Channel partners begin questioning the modus operandi of company officials and start drifting away from the brand. Proper market price control

The material flows from the company to the end user through several intermediaries and market price control at each stage is important for the company.

stages in market price control
Material flow

Challenges to Market Price Control

Several factors in the business environment can be impediments to a company for market price control. Companies must have robust systems to control the elements causing variation of prices in the market. A few factors causing variations are here.

1. Great variation in quantity lifted by wholesalers. Big wholesalers will be able to avail high quantity discounts and pass it on to the market while small wholesalers might not be able to do so. Companies must try to keep a balance between small and big dealers. In any market, the company should not be dependent for more than 30% of sales one wholesaler. It is a good practice to restrict big wholesalers from doing retail sale.

Finally, a reliable retail network is needed so that the material reaches the end customer. Often the handling agents for the commodity companies can also sell material. The handling agents are generally moneyed people because the volume of work they do for the companies needs money and muscle power. While trading, they are able to trade much more quantities than other wholesalers because they can give material on credit to retailers for longer periods.

2. Diversion of low priced material to high price markets because of no control on the transport. Logistics is the key for commodities. If the route to low price market is through a high price market, some dealers can show on paper that they are booking the material for the low price market but unload the material in the high price market, thereby having an arbitrage opportunity in the high price market. Commodity companies must have control on the material logistics. The material billed for a certain place does not get unloaded at a different place. The company needs to develop some system for this. This does not necessarily mean that the company arranges the transport vehicles.

3. Sudden price rise or fall when enough material already exists in the market. Prices are changed by commodity companies overnight. However, all the material is not consumed in the market. Old priced product is still available with some sellers. They do not mind selling it according to the old purchase price. Companies must be very vigilant and announce immediate price discounts to the existing material in the market when they reduce the price or announce the new wholesale price in the market immediately when they increase the price.

4. Variation in perception of a commodity brand in various pockets of the market. This will however not cause variation in the wholesale price within a pocket.

5. Availability of institutional material at select retail counters. Generally material for institutional sale have “Not for resale” marked on them. It is mostly sold at concessional rate by the manufacturers. The problem arises when this institutional material creeps into the retail market and disturbs the market prices. Companies must have a good vigilance system to monitor any outflow of institutional material into retail market.

6. Availability of counterfeit material in the market. This is applicable more for the known brands. The counterfeit material causes confusion in the market. Their price tends to be lower than the announced market price as sellers can average out their earnings.

7. Other factors: Stealth of material from the godowns without the knowledge of the company, cartelization by low price brands and leakage of impending price change information to selected channel partners are other causes which can hamper market price control measures of the company. Companies should develop full-proof systems for effective market price control mechanisms. Companies need to immediately and effectively communicate any price changes, especially hike to the traders and distributors. For this, technology can be the best medium as letters or updated price posters or salesman visit will have a lag time.

Apart from market price control, there are other risk factors also. For this, read the blog on Risk Management.