Use case

Optimizing transfer prices to franchisees

In order to implement an effective pricing strategy for your franchisees, it is essential to optimize their transfer prices.

Franchisees are free to set their own prices, but the head office must provide them with guidelines if they are to remain competitive on the market.
The centralization of this approach aims to control margins, both those of the head office and those offered to franchisees, in order to maintain the overall attractiveness of the brand.

Close collaboration between the head office and franchisees is essential to achieve a balance between flexibility and profitability, thus ensuring the sustainability of the franchise model.

You can then use a pricing automation tool to receive transfer price and recommended selling price recommendations. A pricing solution enables you to :

Base your pricing optimizations on reliable, accessible data
Benefit from the power of sophisticated algorithms to process data and generate pricing recommendations
Personalize your recommendations thanks to more granular segmentation

The ultimate goal is to automate price optimization for franchisees, so as to have a global pricing strategy for both integrated stores and franchisees.

Challenges

There are 3 main challenges to overcome:

Calculating three additional prices for franchisees:

Cost price
Transfer price
Recommended selling price

Integrate and automate the rules for calculating and sharing the margin on transfer prices to franchisees

Propose price recommendations that are consistent between integrated and franchised stores, and between the different pricing levels of franchised stores.

Set up a simple system for passing on prices to franchisees, enabling them to make their own adjustments manually.

Methodology

The transfer price to franchisees is the most important price to optimize as part of a franchisee pricing strategy. We dynamically construct our pricing recommendations according to the following three parameters:

Variables: this is the central element defining the recommended transfer price. They can be based on margin sharing, level of competitiveness, etc., and are the basis for building the brand’s strategy.

Management rules: our algorithms use rules based on:

Product type (private label, premium, etc.)
Product categories
Product value (by price range, for example), etc.

Price ranges: these are groups of stores that receive the same price recommendations. We send transfer price recommendations and recommended selling prices for each price range.

Achievements

For a major food retailer with a large network of franchisees, we implemented:
Automation of sales impact simulation work at three different levels: warehouse, store and global.
A dual instance to enable separate management of warehouse simulation and daily optimization
Definition of price ranges and product linking to guarantee price consistency
Automated calculation of transfer prices to franchisees

These achievements have enabled us to achieve a double-digit ROI and an overall improvement in results in terms of margin, sales and volume!