Strategic pricing is widely regarded as one of the top ways consumer and industrial products companies can drive profitability – and for good reason. Research shows that price management initiatives can increase a company’s margins by two percent to seven percent in 12 months. To unlock the full potential of pricing initiatives, however, companies need a strong foundation in analytics to have adequate visibility into profitability.
Leveraging the data you already own can help you quickly identify potential areas to adjust pricing to capture opportunities. In a recent Webinar, Why Strategic Pricing Matters and How to Do It Effectively, Chris Dinkel, managing director and U.S. SAP Analytics leader at Deloitte Consulting LLP, answered the following key questions.
What is strategic pricing?
Strategic pricing can make use of a series of analytics tools that can help you better understand how your pricing activities affect the overall business. There are three core components of these analytics tools:
- Value identification: Evaluates your value proposition and performs conjoint analysis to help you understand where the opportunities for pricing improvement may lie. Conjoint analysis quantitatively measures customer preferences for product features, forecasts how pricing changes affect demand, and predicts market acceptance of a new product.
- Competitive environment: Looks at the external market and analyzes your competitors.
- Qualitative analysis: Applies a capability maturity model to benchmark the organization’s ability to apply advanced pricing strategies and evaluates performance over time.
Which scenarios benefit most from strategic pricing analytics?
Different sectors within the consumer products industry can take advantage of strategic pricing analytics; specialty chemical, discrete manufacturing, wholesale distribution, aftermarket parts, food processing and ingredients, and medical devices industries can also benefit.
The more complex your organization, the greater the potential gain from strategic pricing analytics. For example, this would include having large numbers of products that get blended together in different ways and with different types of configurations from potential raw-material inputs.
How effective are spreadsheets in pricing analysis?
Many companies try to analyze pricing models using a spreadsheet, but an assembled spreadsheet can’t assess complex scenarios adequately. Every company, regardless of sector, should have a set of repeatable, visual, commercial analytics.
Analytics can help you look at a multitude of customers through a variety of different approaches in the marketplace – whether you sell through channels or a sales force with responsibility for certain geographies. You can look at offers, transactions, and the contracts that are occurring. You can refine your model as you adapt to the insight gained through analysis.
How can a pricing solution help?
The right analytics solution for strategic pricing can help business leaders and pricing specialists make better decisions to impact immediate and long-term profitability. It encourages transparency that enables pricing analysts to make data-driven decisions. And it enables fast value realization – potentially yielding an ROI between 200% and 350%, according to Deloitte – through rapid deployment.
What are typical improvements?
Through strategic pricing analytics, your team gains the ability to:
- Extract a price premium by taking advantage of swings in supply and demand
- Increase prices in segments where your company has a superior price/value position versus the competition
- Increase prices in segments where your company can demonstrate a strong value proposition
- Provide sales reps with documented value propositions and credible value-in-use calculations
- Focus sales and marketing efforts on less price-sensitive customer segments
- Recognize pricing opportunities where customers have significant switching costs or switching barriers
For many organizations, pricing remains an area of great untapped potential. There is a simple step you can take to price more effectively and more strategically. Watch a replay of “Why Strategic Pricing Matters and How to Do It Effectively” to learn how fast deployment of a strategic pricing solution can help.
To learn more about analytics for the consumer products industry, download the new IDC Analyst Connections paper, “Using Data to Digitally Transform Consumer Products.”