Food for Thought

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Food for Thought

By Tim Clark - 04/01/2006

Smart consumer goods firms understand that effective pricing strategies can greatly affect demand. Developing that strategy, however, is no easy task. Intelligent pricing decisions require a firm understanding of consumer demand, competing strategies and effective promotional approaches. That's why multiple data sources -- including various consumer and customer metrics -- make the development of a robust pricing strategy on a per-customer basis difficult to create. A rising number of consumer goods manufacturers are tapping into price optimization software solutions in order to break down complex pricing data into tangible, actionable areas that ultimately enables competitive advantage.

Some of these areas include:

Sales - Manufacturers can evaluate sales data to effectively price products and services based on sales history.
Supply Chain - As retailer demand shifts along the supply chain, manufacturers can more easily reflect demand with pricing applications.
Resource costs - Over time, resource costs fluctuate, and manufactures must adjust their pricing structures to balance their expenditures. Price optimization software solutions make it easier for manufacturers to adjust pricing structures to accommodate these changing operational costs and to help determine the true cost to serve.

Cargill Beefs Up Price Strategy

Cargill Meat Solutions is a producer, marketer and distributor of unbranded meats and is a subsidiary of Minneapolis-based Cargill. The company is an international provider of food, agriculture and risk management products and services. With 105,000 employees in 59 countries, Cargill is committed to using its knowledge and experience to collaborate with customers to help them succeed.

The company recently added SignalDemand to its knowledge portfolio, a provider of pricing and promotion optimization solutions for food and consumer good manufacturers. By improving its pricing and promotion decisions, Cargill says it is now better able to accelerate revenue, profit and market share growth.

How It Works

SignalDemand provides Cargill Meat Solutions with significant insights into the complex supply and demand forces in the beef industry, which has resulted in an increasingly volatile market place. "Using the SignalDemand solution and its detailed analysis of the many market inputs and influences, we are better able to provide our customers with more accurate prices for the available supplies of beef products," says Bill Rupp, president of Cargill Beef. "The SignalDemand tool set enables us to combine the extensive knowledge of our team with a number of market forces including customer demand for individual cuts, seasonal product flows, available cattle supplies and quality characteristics to simplify price discovery with our customers."

SignalDemand enables Cargill Meat Solutions to collaborate with customers in order to:
Develop customized pricing solutions for both day-to-day product needs and ad features.
Promote the most productive products to satisfy consumer demand.
Manage supply cost risks over extended time periods through long-term contract optimization.

Ventura Dresses Up Price

Ventura Foods is also mining great value from the SignalDemand solution. Ventura was formed in 1996 from two predecessor companies that supplied edible oils. Today the company offers a myriad of products, including shortenings, dressings, margarine, sauces and flavor bases. Ventura Foods has developed efficiencies and economies of scale that provide customers with products, services and programs that enhance and grow its sales. With 13 plants located around the country, Ventura is committed to delivering high quality products at competitive prices.

The company is utilizing the SignalDemand solution to improve its pricing and promotion decisions to accelerate revenue, profit and market share growth. SignalDemand's solutions will allow Ventura Foods to increase the speed and profitability of pricing decisions. For Ventura, SignalDemand uniquely links customer information, market indices and supply constraints to provide decision support to sales and operations for everyday pricing decisions, enabling Ventura Foods to:
Quantify the probability for winning each piece of business at profitable margins.
Base price upon plant, line, product and seasonal characteristics and constraints.
Allocate costs to each product, providing visibility to "cost to serve" each customer.
Reduce oversells and undersells by incorporating manufacturing constraints into pricing decisions.

"As with most companies, we know that there is probably business we are doing that we should just not take," says Rick Mazer, CEO and president, Ventura Foods. "SignalDemand will allow us to more consistently and accurately price based upon our true costs to serve, market movements and our quantified understanding of our customer demand. We need to move from intuition to fact-based decisions that are vetted by mathematical rigor to drive profitability and increase market share."

As the aforementioned examples indicate, both food processors and consumer goods manufacturers use SignalDemand's solutions to help fine tune demand and supply, leading to dramatic improvement in financial performance. SignalDemand uses patent pending econometric models, optimization algorithms and activity based costing techniques.