Cost and Performance Excellence
Pricing: An enigma in the digital world
21 Jan 2018
A customer walks into your store and asks for a product that he/she wants to buy. The store’s sales-rep gets the product, shares the list of features/attributes and then tells the offer price. The customer asks your sales-rep if he can give a discount, and the sales rep needs to make a few calls, and inquiries to offer the best discount – but by that time, the customer has already made a decision or has left the store. Sounds familiar?
"Customers in all industries, be it B2B or B2C, have become more intelligent and informed about what products they want to buy, from where they should buy, and what is the best price/deal they will get. They want instant gratification. Be it mobile phones, apparel/shoes, automobiles, flight tickets, or any other product or service, they are more informed about various brands, their offerings, best prices available, and where to buy from, than ever before in this digital world. This is not only true for consumer-facing brands, but also for B2B industries like commercial vehicles, professional services, media, telecom etc. Today, customers know more about companies than companies know about customers – but that doesn’t mean companies do not have the “data” about customers – they just need to turn the data into “actionable” insights in order to win in the market more."
Pricing is one area that is completely untapped from the data and analytics perspectives. All industries capture a tonne of data about their customers and transactions, and this can help them make better strategic and tactical decisions. It is unbelievable how much power this tool has, and the number of insights that it can generate, and yet, how few companies are actually harnessing this potential. In companies where we have delivered pricing solutions through our proprietary pricing engine, PRISM, we have seen significant improvement in realizations (5-8%) and direct corresponding impact to profitability.
So how can companies harness the power of pricing analytics in this digital world? We will separate our points of view for two sets of the audience: one, leadership for strategic choices and two, ground sales teams for tactical decisions.
Leadership: Pricing analytics is a strategic aid to top management. What products to sell? Where? For how much? Who is our competition? What channels and customer segments to go after? Pricing analytics can answer a lot of strategic questions for leadership:
- Profit or market share? This is a core question many companies face. To be honest, it is not an easy decision to make – whether to go for profit or to go for market share. Pricing analytics can suggest the ideal strategic choice for a product/segment. Generally, these decisions are cyclic – companies will go for volume and then focus on profitability and the vice verse. Based on the market situation and what kind of price volume elasticities your products are experiencing in the market, pricing analytics can suggest the right objective function for your products.
- What customer segments to sell to? Analyzing the tonne of transactions and customer data can give key insights to leadership on the “true” customer segments that the company must focus on. These “true” segments arrive through unbiased segmentation techniques. For example, for one consumer products company, we identified a key customer segment as “18-28-year-old males, who live in metros, are above a certain economic level and who mostly wear black colored clothes”. Traditional segmentation techniques already build in bias and aren’t completely pure.
- Competition insights. Who is my core competition? How are they reacting to my pricing strategy? How are customers reacting to pricing changes by competition? Which competitive players am I able to command a premium over? Are there any patterns in the pricing strategy of my competition? These are some very vital questions that pricing analytics answers.
- What should be my overall pricing strategy? How should I price to maintain share? How should I price to not lose money yet moderately keep growing my market share? What should be the discounts and promotions allocation and implementation process? Through our consultative approach, these are some key questions we answer in our pricing offering.
- Planning & budgeting. Price-volume elasticities serve as a crucial validation technique to vet your budgeting process and build necessary buffers at various levels in order to meet board outcomes. Planning ahead can be a daunting task, without any significant analytical reasoning of volume vs value relationships. Creating internal buy-ins of targets and accuracy of forecasting is greatly improved through understanding the price-volume relationships of your products/services.
Ground sales team: The sales executives deeply benefit from a pricing solution. The benefits to them are more direct and very tangible. It is, however, very crucial that sales executives have access to digital solutions on their fingertips to truly harness the potential of pricing analytics. How does pricing analytics help ground sales?
- Customer wow: Sales executives can have the access to such powerful information pricing analytics utilizes, that the same can instantly wow customers – their needs, competitive comparisons, their usage of products and what would be the best fits, to real-time offers etc. Providing the information necessary to sales executives can tremendously improve conversion rates.
- Spot offers: Through analytics, it is very easy to take basic customer information and create a “best fit” offer on the spot. This offer can be tied to the strategic agenda of the organization w.r.t. to that specific geography, product, customer segment, or even outlet, as well as the customer’s price volume elasticity and the probability of the deal happening. Multiple promotional and discounting processes and approvals can be bundled into one single technology and seamlessly delivered to your front-line.
- Negotiation: Given how complex some of the deal-making can be, it is almost impossible for ground teams to fully evaluate sensitivities of various negotiation parameters of a deal – some you lose more and some you lose less. Through analytics, the trade-offs can be assessed properly, and that too in the context of the customer type and their usage pattern, and deals can be negotiated intelligently to create win-wins.
- Process management: Some of the internal discounting and promotional processes can be a daunting task. Overlay that with sales executives incentives, channel incentives, tax/ GST etc. Pricing and deal-making solution on the fingertips of your front-line can deeply reduce the processing burden and digitize seemingly mundane and complex processes while also reducing backlash and errors.
The above represents what is only a fraction of the opportunities that can be unlocked through pricing analytics. From strategic decision making to tactical on the spot decisions to complex mundane processes, pricing analytics creates disproportionate impact across all stakeholders. Through our tried and tested pricing engine, “PRISM”, Praxis delivers tailored solutions at leading firms to better manage to price and harness the associated value.
Authored by (at the time of writing):
Aryaman Tandon, Leader, Cost and Performance Excellence Practice
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