TOP 5 reasons to stop using Excel for your pricing

One of the first questions we ask the retailers we meet is obviously, ‘What tool do you use to do your pricing?'A classic question. The answer is often just as classic.

There are retailers who announce straight away that everything is done in Excel. And then there are those who say they have invested in additional tools and developments in their ERP. But generally, these people always end up telling us, slightly disillusioned, ‘in the end, we’re obliged to review everything in Excel’.

Excel (and GoogleSheet) are exceptional tools for storing, organising and analysing your data efficiently. They offer a variety of functions: sorting, filtering, grouping, macros and even the creation of tables and graphs to visualise trends and patterns in the data. 

The rub is that once you reach a certain level of sophistication in your pricing strategies, using Excel becomes painful. The perfect tool (Mercio 😉 ) may catch your eye, but giving up your spreadsheets can be daunting. So to convince you, we’ve put together our TOP 5 good reasons to leave Excel to set your prices.

1. You make pricing errors without even realising it

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

Mark Twain

Quoting Mark Twain is probably a bit snobbish in an article about pricing, I agree. However, it seems to me that this quotation is apt when talking about the limitations of Excel.

A family pack with a higher price/kg than the small format, non-compliance with the SRP, a price increase 3 days before a promotion… All these errors can be considered by customers or by the law as mistakes. But they are mistakes. We don’t see any malignancy in them, but rather the result of a pricing solution with no safeguards, formulas that have become unreadable, and maintenance that leaves much to be desired.

Typing errors, selection errors and omissions can easily occur when entering large amounts of data. Excel formulas and functions can be misused or misunderstood, leading to calculation errors and incorrect results.

As a result, after successive refinements of the same formula by several collaborators, no one knows exactly what the formula was intended to model in the first place. And finding the sources of error is like looking for a needle in a haystack.

2. The performance of Excel does not allow you to test a multitude of scenarios

Pricing is a a trade-off between competitiveness and margin. In pricing, comparing scenarios is therefore essential: it allows us to identify the possible trade-off options. The most advanced pricing teams present their managers with several pricing policy options, which take into account the planned margin investment, the profitability of the proposed model, and the effect on price indices (attractiveness).

But with Excel, it’s impossible to build such analyses with confidence. Excel spreadsheets have a maximum file size of 4 GB, so the amount of data analysed is severely limited.What’s more, Excel’s performance deteriorates considerably when used with large datasets. Your analyses become slow and impractical.

Also, your reports to your management will involve many different scenarios with complex changes in variables. Excel can become difficult to use to manage many scenarios and keep track of the different assumptions..

Finally, even if you have spent hours refining your models to obtain a What-If analysis report, your understanding of the different scenarios will remain limited. The areas of analysis that you haven’t anticipated won’t be able to be deployed, and you’ll find yourself at a loss when your management asks you questions that are out of the ordinary.

For example, ‘In your second scenario, what happens if we switch to national prices on private labels?Or ‘And if we position ourselves at 1.02 on price-leader rather than 1.01, what margin will we have?'Using Excel (or a tool that doesn’t offer the necessary performance), answering these questions will take you several hours. With Mercio, it only takes a few minutes and can be provided to your management during a meeting.

3. Excel forces you to simplify your approach to pricing, and it’s the quality of your prices that suffers.

Pricing, like all retail disciplines, must be based on the reality on the ground. Your pricing strategy must convince real consumers: they are in a specific catchment area, are influenced by halo bias and do not behave in a totally rational way.

The pricer’s challenge will then be to translate this physical and human reality into decisions based on reliable quantitative indicators. Excel can be a little temperamental. Formulas that are too complex and quantities of data that are too large will get in the way. Excel users have integrated this constraint, and will therefore greatly simplify their modelling of reality. This simplification will have a direct impact on the quality of your prices.

So that my argument doesn’t remain totally abstract, let’s take the example of pricing. Distributors who have used Excel for many years often use a Waterfall system. In other words, the retailer will determine a ‘master’ pricethat respects the main principles of its strategy. The pricing is then segmented by tariff zone, indexed to the standard tariff. For example, the ‘Strong competitive pressure’ tariff will correspond to ‘Master tariff x 0.98’.

Waterfall pricing is preferable when using Excel for 2 reasons: 

• The performance of Excel does not allow sophisticated pricing logic to be applied to the same product.
• Maintenance is a nightmare, because it’s not a tool developed for that purpose, and we quickly get lost in our formulas.

Waterfall pricing will simplify reality. The aim is to relieve Excel (or any other software whose performance is not up to scratch) of tasks that are too difficult for it.

But this concession has a direct impact on the quality of your prices,and therefore on your performance as a retailer. Good practice would normally be to base your pricing directly on the reality on the ground in each trading zone. You would then need to calculate the prices for each shop using the corresponding competitive data.This is what Mercio users do, and it changes everything. This will be the subject of a future article.

4. Using Excel makes the quality of your prices dependent on members of your team

Excel gives the illusion of total control over the pricing process. This illusion is reinforced by the ability to see all the formulas that are applied. Why is this an illusion? Imagine that your pricer resigns and leaves you with his Excel spreadsheets. Do you feel up to taking over? 

If Excel knowledge and expertise are concentrated in the hands of a few employees, you are vulnerable to the risk of losing this knowledge if they leave the company. The models will have been fine-tuned one after the other by numerous employees. Over time, they become illegible and only a few key users are able to find their way through the maze of formulas. Staff departures can make it impossible to maintain and update existing Excel models.

Not to mention staff departures. Simple holiday periods or work stoppages can be a risk for you. If critical analyses are heavily dependent on Excel and a few key users, the flexibility and agility of the business is limited.

Staff arrivals, departures and holidays are all part of company life. Your pricing models cannot be vulnerable to these natural events.

5. Security and integration

Finally, because it’s worth mentioning, Excel slips through the cracks of your IT security checks.

When we work with a new retailer, a number of checks are carried out to ensure that we are complying with good data security practices. And with good reason: pricing involves handling data that is sensitive for retailers! But what about Excel?

Excel does not offer robust security features, which can leave data vulnerable to unauthorised access, accidental modification or deletion. This can lead to data confidentiality and security issues.

Excel does not have built-in encryption features to protect data. This means that data stored in Excel files can be read by anyone with access to the file, even if they do not have the password.

Finally, Excel can be difficult to integrate with other systems and applications, which can create data silos and impede the flow of information.

In conclusion

Whether because of the risk of errors, performance problems or the limits that will be imposed on your pricing, Excel is no longer optimal for managing your pricing.

To keep this article digestible, I’ve kept just 5 arguments for today, but I’ve got other arguments up my sleeve. So if you want to discuss them, don’t hesitate to contact me.