As the man responsible for corporate cash flow and financial planning, many CFOs are skeptical when it comes to dynamic pricing. After all, when prices are constantly changing, it’s difficult for the CFO to have a handle on cash flow, and seemingly impossible for them to make financial plans for the quarters and years ahead. They may be able to see unit sales estimates, but they can’t possibly estimate the revenues and profits that come in.
There really is no way to get around it; dynamic pricing forces CFOs to look at their operations differently.
CFOs need to understand that dynamically adjusting prices to meet market demand creates new opportunities throughout the year, which can help increase cash flow. Platters and dinnerware traditionally have stronger sales towards the end of the year, with the upcoming holiday season. A retailer who recognizes weaker demand during the spring and summer can normalize demand throughout the year for those platters by lowering the price when demand is low and increasing the price as demand rises.
For the CFO, those unexpected summer sales, even at a lower margin, will help boost cash flow throughout the year. As an added bonus, margins will increase on that merchandise as the busier winter season arrives.
Reduced Operational Cost Risk
Market-sensitive pricing also reduces the risk of unexpected operational costs hurting the bottom line. Following traditional pricing methodologies, prices are set based on predetermined rules, such as percentage markup over cost. Oftentimes once items are priced, they don’t get changed. If costs increase, or demand in the market changes, these items are frequently left behind at their original price.
By introducing dynamic pricing, the pricing team pays much closer attention to changes in the market and with their suppliers. They aren’t at risk of falling asleep at the wheel, since their entire focus is on managing the changing prices. As CFO, this means that operational cost changes in the market will be accounted for in the price of merchandise.
A More Challenging Role?
Clearly, there are elements in dynamic pricing that may make an experienced CFO uncomfortable. They work with numbers and prefer when everything lines up as expected. Dynamic pricing throws a wrench into their cash management. However, over time dynamic pricing helps improve the bottom line. In addition to the 30% sales increase and 7%-10% profit increase that Quicklizard customers typically experience, the normalized demand patterns and reduced operational risk means better bottom line numbers in those quarterly and annual reports. And that is good news for any CFO.