Pricing Ch 22-Understanding Pricing

Whoever is setting up the pricing must be thoroughly familiar with your current pricing methodology. Most Users switching to Control are working with personal pricing systems.
These systems range from individual ad-hoc pricing, to general spreadsheets, to semi-automated spreadsheets.
Systemizing your pricing involves formalizing the subtle trade-offs usually found in personal pricing systems.
Because of this, it is imperative that your Pricing Authority has detailed comprehension of how your rates are handled.
Further, the Pricing Authority needs the power to make essential decisions in the standardization process.
Pricing in Control is formula-based and relies heavily on the Cyrious Formula Language (CFL). Those proficient in Microsoft Excel will find CFL straightforward to work with, but for those who have not worked with a spreadsheet program or a scripting/programming language before, some of the concepts covered will be new.
For simple products, it is not necessary to use the pricing process described above. However, in most cases, Users of Control have needs that require different pricing solutions.

VARIABLE QUANTITY

Pricing is normally determined by the properties of the product. The first place to start is the variable quantity. The amount a customer pays is directly related to the quantity they purchase. In simple terms, we can write:
PreDiscountPrice     = Fx (Quantity)
This notation means that the PreDiscountPrice is a function that is dependent on or uses a quantity value. If our product were a pizza, the price might depend on the quantity, size, number of toppings, even the specific toppings chosen. We could express this by writing:
PreDiscountPrice     = Fx (Quantity, Size, Number of ToppingCount, Topping1, Topping2)
These formulas are written in CFL, using standard algebraic notation with a few enhancements for units. An example of the way this formula could end up is:
PreDiscountPrice     = Quantity * (2 + 1* (Size in Inches) +
IF ToppingCount > 1
THEN 3 * (ToppingCount-1)
ELSE 0
ENDIF)
You might offer an automatic volume discount when five pizzas are ordered for takeout. We could adjust our PreDiscountPrice, but it might be easier mathematically, or preferred conceptually, to break this discount into a separate calculation:
BuiltInDiscount         = Fx (Quantity, TakeOut)
Our base price, which is the price that the operator and customer will see, would be the PreDiscountPrice less the BuiltInDiscount. You may choose to leave the BuiltInDiscount as zero, and instead have the DisplayedDiscount reflect the quantity break so that the operator and customer would have explicitly seen the discount. If this is what you want, then you might have written:
BuiltInDiscount     = 0
DisplayedDiscount    = Fx (Quantity, TakeOut)
The subtotal price would be the same. The difference is whether you want the customer to see the discount explicitly. With Control, you can have it either way.

Basic Math and Algebra

Basic Math and Algebra – need images and more detail

In order to set up the pricing in Control, you must possess the aptitude to work with conventional formulas. Most people that use Microsoft Excel already have sufficient skills to set up pricing in Control. However, evaluating existing products can guide those who are in doubt.
Pricing with formulas involves two aspects:
  1. Converting a rule to a formula. Involves translating the logic used in pricing into a mathematical formula that the computer can evaluate.
  2. Using mathematical functions .
For example, if you price a 6" pizza at $8, an 8" pizza at $10, a 10" pizza at $12, and so on, the appropriate mathematical formula might be:
Price = Diameter in Inches + 2
Mathematical functions include Trigonometric functions (Sine, Cosine), character manipulation (CharacterCount, WordCount), and logic/conditional functions (IF/THEN, OR). Some cases require complex mathematical functions. In other cases, an entire dataset uses few functions.
Some examples of mathematic functions used in pricing are:
Amount_Of_White_Paint
    = IF Color =" White"
    THEN Quantity * Area in SqFeet
    ELSE 0
    ENDIF
Rivets Needed    = Quantity * Area * 100 per SqFoot
These formulas intend to illustrate mathematical functions and may or may not be relevant to your pricing.

Elements of Pricing

Products are the core elements of pricing. Establishing the pricing for a product is done in the Product Setup.
The price for a line item in Control is calculated as follows:
PreDiscount Price
- BuiltInDiscount     = BasePrice
+ Modifier Price     = Product Price
- Displayed Discount     = Subtotal Price
+ Taxes            = Total Price
Pre-discount price – Starting price for the product. May be entered as a value or a formula.
Built-in discount – Used for quantity or volume discounts. May be entered as a value or a formula. This will not be separately listed to the User or customer. If you want the discount visible to the User or operator, use the displayed discount option.
Base price – The pre-discount price less any built-in discount. You might want to think of this as the basic price of the product, before any separate modifiers are applied. The base price is the first price that can also be manually entered or overridden by the operator during order entry.
Modifier price – Calculated by adding up the price of all of the modifiers associated with the product. Each individual modifier price is entered as a value or a formula and may be manually entered or overridden by the operator, though the total for all modifiers cannot be explicitly changed. In certain cost-plus pricing models, the modifier pricing is built into the pre-discount price and not broken out separately.
Product price – The base price plus the modifier price. The price of the product considering all options specified.
Displayed discount – Sometimes just referred to as the discount. Reflects the discount displayed to the User for this product. Often entered by the operator during order entry, but may also be entered during setup as a value or a formula.
Subtotal price – Calculated by subtracting the displayed discount from the product price. The subtotal price may be manually entered or overridden by the operator during order entry.
When the sub total price is manually overridden, the value will not change even when the information entered about the product changes.
Taxes – Calculated based on the tax region assigned to the line item during order entry. This tax is the same for the entire order unless overridden. Products may be taxed normally (based on the order), exempted from all taxes, or exempted from specific taxes. Tax calculations may not be manually overridden.
Total Price – The subtotal price plus any applicable Taxes. May not be manually overridden.

See Also