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  • CPQ
    February 26, 2016

Avoiding the "Booze Cruise" Effect in Your Organization

A number of years ago the UK Government relaxed the rules for importing alcohol and cigarettes into the UK for personal consumption. The change was roughly the following (and apologies to tax professionals if I haven't understood the laws to the letter): The old rules allowed import of only 200 cigarettes and one litre of alcohol. After the change, travellers had no limit as long as local tax was paid in the country of purchase.

Overnight, the money saved, by travelling abroad and purchasing in reasonable bulk, outweighed the cost of travel. Thus, the "booze cruise" culture was born. The only real issue was proving to H.M. Customs what you returned with was for "personal consumption," but that's for another blog post.

For the first time the average person in the UK became aware of the impacts of cross-border trade and currency exchanges on product prices. They realized that by looking across borders they could get a much better price for the same product they usually bought at home.

All very straightforward, I hear you say. In the business world, we have been aware of currency rate impacts for years. Today, however, we see more purchasing organisations taking an analytical approach to pricing and negotiation.

An Example Based on Real Experience

Today, purchasing functions have far more access to price information across their organisation. Previously, if Company ABC paid €100 for a product from Company XYZ in Italy and €140 for the same product from the same company in France, the difference was largely hidden. Local teams managed local purchasing.

On the other side of the coin, Company XYZ, selling the product into Company ABC, was probably unaware of the price difference as well. Company XYZ is concerned more about top line revenue and less about pricing consistency. The variance in selling price across market geographies is either unknown or tacitly accepted. Sales hit their number and all was good. So far everyone is happy!

Unknown to Company XYZ, Company ABC updates key systems and now has global visibility of product/price variance across geography. The purchasing team is intrigued to see that, because of the generosity of a particular sales rep, the prices they pay in Italy is much lower than the prices they pay in France. Perhaps the rep was behind their sales target? Perhaps the rep was new to the role? It's even possible the rep didn't have access to the latest pricing information spreadsheet and was working off old, outdated information.

Having discovered this, what is company ABC's next action? Yes, it approaches the selling company and negotiates/demands the Italian price in all its regions. In one move Company ABC has:

  • Reduced their product purchase price across all regions
  • Decreased gross profit and profit margin from Company XYZ's bottom line

This story happened whilst I worked with a previous company. The impact? An existing customer received a huge reduction in price and the company lost revenue. A lot of revenue!

Could you see something like this happening in your organisation? How can you keep it from happening? The answer involves far better control of sales reps and tighter management of their ability to quote and contract across your business. Governance and control in these early stages helps manage risk and maintain critical margins. That's not to say different prices in different regions is wrong, you just need to control it and understand potential downstream impacts.

Don't Be Like Company XYZ

Oracle CPQ Cloud enables tight management of pricing approval, quote creation and automatically generates approved quote documents and contracts. By using Oracle CPQ cloud, you ensure sales reps follow agreed-upon pricing standards that support business goals. You can also monitor product/price variance across the organisation. This highlights potential areas of concern, including renegade reps offering larger discounts just to get deals through.

This is just one example of the value Oracle CPQ Cloud can bring to your business. For more information on how you can reduce this risk and others please visit oracle.com/cpq

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