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Siebel Pricing – Component Based Pricing

10 November 2009 716 views One Comment

Component-based pricing is a pricing method that will allow you to price a customizable product. You need to have a good understanding of customizable product and eConfigurator to understand the possibilities of Component-based pricing.

A customizable product is a product that has one of several component(s). Each of these components can also be a customizable product. In Siebel, you can define a product structure with as many customizable products you need, at any level (well, except at the last level!). Example:

In the above diagram, the product structure has 4 customizable products (in bold). I will also often call customizable product: “CxP”. “Level 1” is often referred as the “root” CxP or simply “root” product.

The “why and how” of customizable products will not be discussed in this article. As said previously, you must know what a CxP is to understand this article.

This article contains several screenshots of Siebel. Note that I have modified the Applets’ Layout to better show relevant information.

Functionalities

Follows this (high level) workflow:

“Component-Based Pricing” is implemented in the “Dynamic Pricing Procedure” (WP) workflow process, at step “Customizable Product Adjustment”. That unique step contains all the logic required for this type of pricing.

This workflow is typically used to calculate the Start Price in the Quote/Order.

This is important to know because it means that “Component-Based Pricing” is designed calculate the price of a customizable product based on the different components selected in the product configurator. The price can change based on selected components, but this price will still be seen as the “normal” price, i.e. a price that does not include any discount you may receive (Volume discount, Promotions…)

This is why it is shown in the Start Price and not in the Net Price.

All forms of discount are calculated in the Net Price by a different WP: “Pricing Procedure – Calculate Net Price”

I have prepared 3 different scenarios to illustrate Component-Based Pricing” There are more variations but those 3 I hope, should cover most situations:

Fixed Pricing: Your CxP has a fixed price, changes in the components will not affect the price
==> This is a possible solution if you want to bundle products together
Roll-Up Pricing: The CxP has a price of zero, selection of components will define the CxP’s price.
==> This is the approach to consider if you require BOM Pricing.
Combination of Fixed and Roll-Up Pricing
==> The CxP has a base price that can change depending of the configuration of the product.
==> can be used to implement some sort of discount rules
==> Components can be purchased separately but at a different price

Scenario A: Fixed Pricing

Fixed Price is the best approach for fixed customizable bundle (Bundle Discount, Product Bundle and Promotions are also good options to consider for bundling products but will be discussed in separate articles)

You first define a product structure with default components in eConfigurator. This is the structure I’ve created to illustrate this scenario:

Each box represents a product in S_PROD_INT
Arrow represent the relationships and the cardinality (“Min, Max, Default”, as defined in eConfigurator)
Boxes in bold represent the default components in the CxP structure.

Because our pricing strategy is “Fixed Price”, you would normally not allow the product to be customized unless the customization does not affect the price. In this example, we will allow customization of the hard disks, the bigger model (but slower) will be offered as a free upgrade.

All products in the above product structure should be added to a Price List

Here is how the Price List would look:

Note that only the root product has a price. All other products have a price of zero. This is how you should implement “Fixed Price” scenarios.

You click on the “Valoris BL1600…” hyperlink, the Pricing Designer will open:

In this scenario, you only need to use the “Check Starting Price” button. All other functionalities are not required and will be explained in scenario B.

The “Check Starting At Price” will calculate the price of the root product as follow:

List Price of the root product (Valoris BL1600 + Docking Station Bundle)
+ List Price of default products (components, CxP) in the product structure as defined in eConfigurator, adjusted by the Adjustment rule defined in the Pricing Designer.

In our example, the “Starting At Price” would be:

Valoris BL1600 + Docking Station Bundle   $1000
Valoris BL1600                                                                $0
160 Gb 7200 rpm                                                           $0
Optical Drive (DVD/CD burner)                                $0
Docking Station                                                               $0
Total:                                                                            $1000

Finally, let’s have a look at the order:

As you can see, all prices are correct; I have customized the product to choose the 250 gb hard disk upgrade and this has not changed the price, as expected.

Scenario b: Roll-Up Pricing

Roll-Up prices is approximately the opposite of the Fixed Price approach.

With Roll-Up Pricing, the Root CxP product has a price of zero. It is the selection of components that makes up the Price of the entire product structure. This approach is preferred when a product has many components that affect the final price of the Root product.

I’ll keep the example of my laptop computer. I have added a new component called “Base Configuration” and have added more components and changed the relationships. This is the new product structure:

Again, all products in bold are default components (and can be changed for another option)

The 2 GB and the Docking Station have a discount if you buy them with the Valoris BL 1600 laptop. If you buy them separately, you will pay the List Price.

You then add these products to your Price List with their respective List Price. The Price List should look like this:

Every product has a Price except the root CxP product. The CxP will roll-up the prices of each selected components.

We will know discover the use of Adjustments in the Pricing Designer. Our adjustments will be as follow:

You’ll get 10% discount for “RAM 2 GB” if bought with the “Valoris BL1600” laptop
25% discount to the “Docking Station” if bought with the “Valoris BL1600” laptop
10% for the “160 GB 7200 rpm” when bought with the “Valoris BL1600” laptop
15% for the “160 GB 7200 rpm” when bought with the “Docking Station”

Click on the “Valoris BL 1600” hyperlink to open the Pricing Designer. In the Pricing Designer, add the required adjustments. To apply the 10 and 15% discount on the “160 GB 7200 rpm” hard disk you must look at the Parent Product field in the Pricing Designer.

The Pricing Designer should look like this:

There are 4 important information on this View:

The Start Price is still $1000. It was calculated by the Pricing Engine as follow:

Default Products:	List Price	Adjustment from the Pricing Designer	Adjusted List Price
Valoris BL1600	$0	N/A	$0
Base Configuration	$659.5	-	$659.5
Memory (RAM 2 GB)	$45	10% Discount	$40.50
Hard Disk (160 GB 7200 rpm)	$50	-	$50
LCD Panel (XGA Panel)	$200	-	$200
Optical Drive (DVD/CD burner)	$50	-	$50
Total:			$1000

The Docking station has a 25% discount if it is purchased as part of the “Valoris BL 1600” product configuration (note: you can consider this as a flexible bundle!).
è If you buy this product separately, you will not get the discount.
This popup applet is shown when you press the “Verify Adjustments” button. It shows a history of prices for the product.
è “Component-Based Pricing Chapter 2” will explain how the start/end dates of products, Price List, Price List Item and Pricing Designer affect price calculations.
What is important here is the 2 last columns: Base Price and Reference Price.

The “Base Price” is the price you will see in the Order if the product is bought separately.
The “Reference Price” is the price you will see in the Order if the product is bought as part of the CxP product structure. The Reference Price includes Price Adjustments you have defined in the Price Designer.

The hard disks appear twice in the Pricing Designer. That is because you can buy a hard disk for the laptop but also for the docking station (secondary hard disk). You can differentiate the hard disks by looking at the field: “Parent Product”. Here the parent product for the hard disks is either “Docking Station” or “Valoris BL1600”. The Pricing Manager allows you to define different Price Adjustments for the same product, assuming you create the appropriate relationships in eConfigurator (here, the hard disks belongs to 2 different relationships: one with the laptop and one with the Docking Station)

Finally let’s have a look at the Order:

The “Rollup Amount” shows for every CxP product the sum of the Start Price of all child products (components)
The “LOY Rollup Item Price” is a field that I have manually exposed; those of you who use Siebel Loyalty will recognize it. It is a very useful field and can be used beyond Siebel Loyalty. It shows the price of the CxP plus the rollup of the child product. The Valoris BL1600 has no list price, so the “LOY Rollup Item Price” is identical to the “Rollup Amount”. Have a look at the Docking Station product. Its price is $90. the price of its components (the hard disk and the Raid controller) is $112.5. So the total (unit) price of the Docking Station is $202.50
The “Extended Rollup Line Total” is again a field that is unfortunately not displayed by default. I have exposed it here to show that “Component-Based Pricing” completely supports Extended Qty functionality. I have ordered 2 laptops and 2 times 2GB of RAM. So the extended Qty of the RAM is 4 items. You will notice that components also have a price. They shouldn’t. Since they are not CxP, they should not have Rollup figures. This is a very tiny bug that can be easily fixed by changing the “calculation value” logic in the Buscomp.
To show the effect of Component-Based Pricing, I have added the 160 GB hard disk in 3 different ways:

I have added it as part of the Laptop configuration.
è It gets the 10% as specified in the Pricing Designer (the reference price is applied)
I have added it as part of the Docking Station configuration
è It gets the 15% as specified in the Pricing Designer (the reference price is applied)
I have added it as a stand alone purchase
è It doesn’t get any discount because it is not part of a CxP configuration so there is not Pricing Designer adjustment to apply (Base Price)

By the way, have you noticed that we have just implemented BOM Pricing

Scenario C: Combination

Last but not least, the last scenario: a combination of scenario A and B. To be honest, scenario C is non-existent. There is many ways to use component-based pricing and I will just show one example of a combination.

Again I’ll use my laptop to illustrate how to set-up this. Here is the product structure and its prices:

You will notice that the root CxP product has a List Price again (like in scenario A)

The default components also have a List Price (like in scenario B) but their price will be set to zero in the Pricing Designer because the List Price of the root CxP already include the cost and margin of the default components

Optional components have a list and a price override that is equal to the difference between the default component and the optional component.

Example: the default DVD/CD burner costs $50. If you upgrade the optical unit to a Blu-Ray burner, you will not pay the full price of the Blu-Ray burner but only the price difference (because you remove the DVD/CD burner from the configuration): 350-50= 300

The reason we have a List Price for every product is because we can sell these products separately (which was not possible in scenario A)

Finally, you can still add discount for product that are bought in a laptop configuration (example: the Docking Station is 25% if you buy it in a laptop configuration. If you buy the laptop and the docking Station separately, even in the same order, you will not get the discount. (Aggregate Discount would be the solution if you would still want to give the 25% to the Docking Station even if it is not purchased as part of the laptop configuration).

I will not show the Price List and the Pricing Designer. You should easily guess what they’re going to look like by now.

You will now also guess how the order will look like (no screenshot provided here):

The laptop (line 1) has a Start Price of $1000, this price includes the cost of all default components. Therefore, default components (XGA Panel, RAM 2 GB on lines 1.1 and 1.2) have a Start Price of zero

Since I selected the Blu-Ray optical Unit (line 1.3), I have to pay extra. This extra is $300 (List Price of the Blu-Ray ($350) minus the cost of the DVD optical unit ($50).

The same logic apply for the 250 GB hard disk (line 1.4), we only charge the extra cost to replace the 170 GB with the 250 GB, that is $20. I have also bought 2 more 250GB hard disks (lines 1.5.1 and 2), one for the Docking Station and a spare one. They are charge at their full price ($70) because they don’t replace an existing drive.

I have also 2 docking Station. The first one (line 1.5) is part of the laptop configuration, therefore we get 25% discount. I have bought another one (line 3), separately, therefore I pay the full price ($120).

Further considerations

There is a significant number of pricing fields in the Line Items Buscomp that you can modify to fine-tune your pricing requirements for rollup prices the vast majority are calculated fields and are easily changeable.

When you decide to use “Component-Based Pricing” make sure you simultaneously understand requirements from Sales/marketing, ordering and back office (including accounting) requirements. The design decisions you will make must comply with all these parties. Always keep in mind that end-users must also be able to quickly and easily understand the prices shown in the application. Resist the temptation to show too much (too much is probably what Back Office will ask, so give them what they want but hide it from the GUI!)

“Starting At Price”:

When you add an Adjustment in the Pricing Designer and click the “Check Starting At Price” button you will not see any change. You must first click on “Refresh Cache” in the Price List and return to the Pricing Designer to recalculate the “Starting At Price”. This is because the button calls the same Pricing Procedures than in the Order/Quote and are based on cached information.

In scenario C, the cardinality of the memory is 2,1,1, so you can actually buy 2 memory items. There is an undesired side effect here. Since we put the price override to 0 (because the cost of the memory is already included in the root CxP) buying 2 memories will still give a price of zero (as per the price override rule in the Pricing Designer). Obviously the second memory should be charged as its cost is not included in the Laptop base price. You can either create a second relationship in eConfigurator (called “Memory Extension” or whatever) or change the Pricing workflow (not recommended at all in this particular case, but it’s possible)