Performing Sales Pricing for Retail (3I4)

The figure shows the basic set-up of a Retail organization with the headquarters (US Retailer Inc.), and their distribution centers and stores. Additionally, there are the (external) business partners: suppliers for merchandise procurement, and customers (wholesale, re-sellers,..), and consumers on the sales side.

This unit focuses on the headquarters processes, which cover site maintenance, setting up merchandise categories, and creating retail articles, including vendor data. Furthermore, assortment modules are created, connecting sites and articles. To complete master data maintenance, sales prices are created. With that, the basis for retail operations are set.

In solution process Sites for Retail (3I3), sites are set up across SAP Central Business Configuration, retail-specific product configuration, and master data maintenance in the application. Site groupings are created for use in reporting, as selection criteria in various applications, and to select sites in various applications. The merchandise category hierarchy, covered in solution process Product Taxonomies for Retail (5FJ), is the central classification for the retail articles. Characteristics can be used to define attributes for information purposes, but can also be assigned to classes, which are then used to define the variants of generic articles. The solution process Products for Retail (3I1) explains the retail article categories single article, generic article, and structured articles, and how to maintain vendor-article specific data in purchasing info records. It also introduces functions for managing retail article master records, such as data creating via interface, mass maintenance, discontinuation. The Assortments (3I5) solution process introduces the maintenance of assortment modules, which are used to connect articles and sites, which includes the creation of article-site specific data in the background. With that, the articles are ready to be ordered, received, and sold in the sites. Actually, to be sold, a sales price has to be defined for the articles. The system supports the creation of sales prices for the articles on different pricing levels in the sales price calculation function, as explained in solution process Sales Pricing for Retail (3I4).

Each solution process represents a lesson in this unit, and can be completed individually.

This lesson covers the solution process Sales Pricing for Retail (3I4).

In the retail industry, specific terms differ from the standard terms used in other lines of business. The following terms are used synonymously in this document:

The question that was previously posed in the Assortments (3I5) solution process, as to which articles are to be sold when and in which stores, can be enhanced with another question: at which price? This is the topic of the solution process covered in this lesson. Besides defining which articles to sell, the right retail prices are a decisive success factor.

In a retail system, typically a large number of sales price conditions has to be maintained. For each article, usually several prices are necessary: A retail price, a wholesale price, a DC transfer price, maybe another one for e-commerce, and then, additionally, on distribution-chain and price-list levels, or site- / customer-specific. The Retail Pricing functionality is there to ease and support the maintenance of the vast number of sales prices in SAP Retail. So, instead of creating sales price condition records manually, the system performs sales price calculations based on your settings, which you can then accept, if necessary adjust, and save. Once the sales price condition records are created, they are then applied at the point-of-sale systems in the stores, or in customer sales orders, upon their validity start date.

Of course, also further conditions besides the sales price can be created in the system, such as discounts, freight conditions, tax conditions and such, but this lesson concentrates on the sales price calculation function.

SAP Retail offers 3 pricing levels:

• Distribution Chain
• Distribution Chain + Price List *
• Site Specific

* Price lists can be assigned to sites on merchandise category level, and to customers in the sales area data.

The sales price determination always picks the most detailed price. For example, a site-specific sales price for an article exists. Then, the system uses this site-specific price for the relevant site. If no site-specific price exists, then the system checks for a price on the next higher level, that is, it analyzes, if a price list is assigned. If not, then the most general price on distribution chain level is used.

This concept supports uniform prices across the organization (with correspondingly reduced maintenance effort), while allowing exceptions on more specific levels.

In addition to regular sales prices, promotion sales prices are part of the overall pricing strategy of a Retailer. Consumers are used to, and they expect to find for example weekly offers when shopping for groceries in stores, or online.

Above figure, Sales Prices in Retail, provides some examples. For Store A, the article is on promotion during the period of June 01 - July 15, therefore a site-specific promotion price of (USD) 2.98 is valid. Before and after that promotion period, the regular sales price is used. This means, a promotion price overrules the regular sales price of an article.

Stores B and C both have the price-list for the Region South assigned to the merchandise category of that article, at a regular sales price of (USD) 3.49 from June 15 - August 01.

These examples also emphasize that in SAP Retail, each price, as well as each other kind of condition, is time-dependent. Thus, in the example above, the regular sales price (on price-list level) can of course be different in the periods before June 15, and after August 01.

The retail pricing function allows you to calculate the sales prices of many articles on multiple organizational levels at the same time. The first step in the calculation is to determine a cost price, usually based on purchase conditions, or based on the current valuation price, or in other ways. The field PP (nt/nt) in the figure above, Basic Functions in Retail Pricing, shows the cost price of 1.47 in that example.

The system then adds the planned markup percentage, which was maintained on merchandise category level for the distribution chain or price list. The condition type used to create the markup percentages is EDS1. The markup reflects both the general cost components, and the profit that a company aims to achieve by selling the articles. This results in the calculation of a final price. An additional pricing function is for example the consideration of psychological price point rounding when calculating retail sales prices (typically not used in business-to-business (B2B) scenarios). In the example above, the final price is rounded to end at a "9" (1.79), correspondingly, the actual markup is higher (21.769%) than the planned markup (20%). Price Point Groups can be configured, so you can determine the rounding logic for distribution chains and price lists, and optionally even on merchandise category level. Also, a different rounding logic may apply for regular sales prices and promotion prices. Example: Regular retail prices may be rounded to a "9", whereas promotion prices end at "8".

The online price calculation is interactive, so the user may accept the final price calculated by the system, or manually adjust the price, or other pricing elements such as the markup. From the price calculation, you can also access additional, detailed calculation information, for example to analyze the purchase and sales calculation steps. Also, a currently valid final price condition record can be viewed.

For the Create Sales Price Calculation app (VKP5), a comprehensive selection screen is available. There, you specify the articles and organizational levels you want to calculate.

You use the list group to define if the article is displayed in the sales price calculation at header level, with the organizational levels at item level (list group A, example in figure, Basic Functions in Retail Pricing further above), or vice versa (list group B). List groups C and D are used to display the pricing table in an SAP ABAP List Viewer (ALV) design. With those, both the selected articles and the organizational levels are displayed in a table on one screen. The figure above, Sales Price Calculation — Display, shows the example of list group C.

The list variant is predefined by SAP, and defines the layout of the pricing table. It controls the selection and sequence of the pricing table columns, that is, the sequence of the list fields. For each list field, it is defined how the values are populated, and for the final price field, how the sales price condition record is stored on the database after saving the calculation.

The sales price calculation function is also available in the Create Retail Article app (MM41), and the Maintain Retail Article app (MM42). Furthermore, it is possible to import data for the sales price calculation.

By default, retail pricing considers the way the merchandise is procured (directly from the supplier or via a distribution center). Thus, you can reflect distribution costs and support selling merchandise from distribution centers to stores (for example, in a franchise scenario).

When sites are supplied directly from vendors, the sales price calculation is called "one-step sales price calculation", as the calculation of the sales prices for the stores is directly based on the purchase price from the external vendor. The distribution center is not involved in this process.

A two-step sales price calculation applies, if the store receives the merchandise from the distribution center. This means, in the sales price calculation for the store, the system first calculates the transfer price at DC distribution chain level. In the second calculation, the sales price for the store is calculated, using the distribution center transfer price as the purchasing net cost. In this calculation step, the supplying site is the supplier. You can also carry out two-step, or multi-step price calculation for deliveries between distribution centers (for example if regional distribution centers deliver to local distribution center).

This means, the system performs a supply source determination, based on the supply source key in the article master (logistics data for stores, DCs):

• One-step calculation applies with an external (standard) supply source key
• Two-step calculation applies with an internal supply source key

Purchase- and Sales Price Determination Sequences add flexibility to the retail pricing function. The Purchase Price Determination Sequences (PPDS) are used to influence the way the Purchase net/net value in a sales price calculation is determined. The Sales Price Determination Sequences (SPDS) are used to influence the actual sales price calculation, for example if the planned markup is used, or if the final price is fixed, or for example eases mass maintenance over the current sales price.

Once the supply source determination for the article has been carried out, the sales price calculation begins with the purchase price determination. The rule for the source determination is that the system uses the regular vendor. If no regular vendor indicator is set, then the system uses the cheapest vendor. The purchase price (net/net) is calculated using the vendor's purchase price calculation schema. This is the basic logic of retail pricing, and takes place with PPDS 01. In case of two-step pricing, the retail price is calculated on the basis of the DC transfer price. That condition is determined using a sales pricing procedure.

PPDS 02 works in the same way, but uses another approach, if the sales price of a sales set should be created, for which no purchase price exists. Sales sets are often defined by the retailer, and not purchased as such. But the components of the sales set bill of material are purchased individually. In that case, the system adds up the purchase prices of the components to form a virtual purchase price for the set. Then, the system can again use the markup calculation to determine a sales price for the set article.

PPDS 03 offers an exception when calculating a DC transfer price for a perishables article. These articles are often procured from several vendors, and therefore the basis for the DC transfer price calculation should be an average of these vendor prices. When calculating other articles, or for other organizational levels than the DC distribution chain, the system uses the basic logic as per PPDS 01.

With PPDS 04, the system doesn't perform a supply source determination, but you can enter a purchase price directly in the calculation.

PPDS 07 summarizes PPDS 01, 02, and 03. This could for example be used when calculating many articles (regular, perishables, structured articles) at the same time.

Sales Price Determination Sequences (SPDS) offer a similar flexibility for the sales price calculation part in pricing:

SPDS 01 performs the markup calculation. This is the basic function of retail pricing.

SPDS 02: It is also possible to perform the sales price calculation based on an existing sales price, which should remain unchanged, for example for articles with a fixed price. In this case, the system automatically re-calculates the pricing key figures, such as the actual markup, and the gross and net margins in a backwards calculation.

SPDS 03 is used, when the final price should be based on a suggested price.

SPDS 04 and 05 can be used for mass changes of the currently valid retail prices - either as percentage differences (04), or absolute differences (05).

SPDS 06 combines PPDS 02 and 01.

Except for SPDS 02, where the current final price is not changed, the system still applies price point rounding (in case a price point group is assigned).

The Determine Sales Prices app (VKP2) - the Price Overview - can be used any time to look up the valid sales prices for the articles and organizational levels in the period defined by the user.

Pricing types are maintained in Configuration for Retail Pricing and are linked, in a second step, to a distribution chain and/or distribution chain plus price list (with currency). There, also a pricing reference site is assigned, which is used for supply source determination in the retail price calculation.

The pricing type is a central control element for the retail pricing function. It controls:

• which pricing procedure is used in the sales price calculation
• whether pricing documents are to be created
• whether the sales price or the markup are held, or the planned markup is used, when there is a change in the purchase price and the article is re-calculated
• which currency is to be used for the calculation
• which conversion rate is to be used to convert foreign currencies

Pricing documents are used to store detailed information about a sales price calculation, for example who performed the price calculation, or which input parameters were used.

Pricing documents are also used to implement authorizations: Some employees may be allowed to perform the calculations, but another employee, or manager, may have to release them, so the actual condition records can be created. Therefore, the pricing document has different statuses. A and B for users who perform the calculation, but are not authorized to save the new sales prices. After the release of these calculations, the conditions are created, and the status switches to C.

Status D means, the calculation is flagged for deletion. Another aspect of pricing documents is that they allow you to cancel a previous price calculation (status E), and thus return to the previously valid sales price.

The creation of pricing documents is a prerequisite for using the pricing worklist function. With that, it is possible to have the system automatically monitor, if sales prices have to be adjusted.

For that automatic monitoring, in configuration, the most important condition types for external and internal procurement are specified. For external procurement, these are the regular basic (gross) purchase price of an article (info-record level or site-specific), as well as a promotion purchase price (info-record level), and a percentage vendor condition type (vendor level). For internal procurement, it is the DC transfer price condition type on distribution chain - or site level. When there are changes to these conditions, the system includes these articles when the pricing worklist is generated, and then, automatically, these articles are recalculated. The relevant sales price condition types and organizational levels are defined in the Subsequent Index Compilation for Sales Prices configuration step.

The same happens for articles, for which a pricing-relevant master data setting was changed, that is, the supply source key. A switch from external to internal procurement, or vice versa, means switching between one-step and two-step pricing. After the pricing worklist was executed, the responsible user monitors the results: The calculations can be accepted or manually adjusted, and are then released. With that, the new sales prices are saved.

To summarize the configuration involved in retail pricing: The Retail pricing function uses the general SAP condition technique from purchasing and sales, which includes condition tables, condition types, access sequences, calculation schemas / pricing procedures, and schema determination settings. These settings are then used to create condition records in the application. Some of the purchase conditions are relevant in retail pricing to determine the purchasing net cost value, for example usually the article gross price, and vendor discounts. Sales-related conditions relevant for pricing are for example the planned markup conditions, which are specifically created for the retail pricing application. And then, of course, retail pricing itself creates the sales price condition records for all the articles on different organizational levels.

Then, additionally, retail-specific pricing settings for the pricing type, for price point groups, and for the pricing worklist are available, as mentioned in this lesson.

For generic articles and their variants, special settings are available to control the sales price calculation. As described in solution process Products for Retail (3I1), the generic article can be used to efficiently maintain variant data. This also applies to the sales price calculation for variants. As illustrated in the figure below, Generic Article Pricing, a Pricing profile is maintained in the Basic Data view of the generic article (left upper screenshot).

3 pricing profiles are available:

Blank: If all variants will have their own sales price, they will be calculated individually, and the generic article is not used as a pricing reference article. An example: the generic article variants are golden necklaces in different lengths.

1: This pricing profile means, that the generic article is initially suggested as the pricing reference article for all variants, but the user may change these assignments. Example: A shirt in different color/size combinations (variants) has the same sales price, except the black and white variants.

2: This pricing profile is used as the example in the figure. Here, all variants have the same price, therefore, the sales price is calculated for the generic article, and inherited by all variants, as shown in the right upper screenshot.

This results in the same final price for all variants (USD 36.99) in our example, the price calculated for the generic article. The prices for the variants can't be edited, as shown in the screenshot at the bottom.

Note the additional indicator Var.Pr.All in the Basic Data view: If selected, promotion sales prices can still be maintained individually for the variants - despite the strict setting for the regular variant sales prices as in pricing profile 2. With that indicator, you can still take individual variants on promotion, for example, only specific color variants of a shirt. However, as a prerequisite, the Variant Price Allowed indicator also has to be set in the promotion type (configuration).

Summary

The key process flows covered in the tutorials for this process are to:

• Maintain Planned Markups
• Calculate Sales Prices for Articles
• Display the Price Overview
• Display Pricing Documents