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Use Analytics to Pull the Pricing Lever

Short Takes...on Analytics

Posted by John Norkus, Principal, Deloitte Consulting LLP

Price management initiatives have been shown to help companies increase their margins by 2 to 7 percent within a year, producing a 200 to 350 percent return on investment1 . So why is pricing so far down the list of options for organizations looking to improve performance?

And why is it that when business leaders do pull the lever on pricing, they often rely on gut instinct rather than hard data to make decisions? That’s not only a recipe for missed opportunity, but it can even expose the organization to unnecessary risks.

I won’t attempt to answer those questions today. Instead, let’s take a quick look at one option that pricing leaders are turning to more frequently than ever: analytics.

These days, advanced pricing analytics are helping companies mine real-time information for insight into price management, price leveraging, and trade spend effectiveness. Pricing leaders are able to sift through massive, previously impenetrable data sets to find patterns, trends, and anomalies. For instance, they can identify specific products, customers, or regions that are having an outsized effect on profitability and performance. Armed with that information, companies might discontinue unprofitable products more quickly, step up investment in other areas, or develop new strategies.

While they’re collecting more data than ever before, many companies still lack visibility into the true economic profitability of their products, regions, channels, or customer segments. Analytics can help solve this problem. And today, it’s faster and easier to implement than ever before.

If you know you need to get moving on analytics but aren’t sure where to start, here are some ideas:

  • Start small.  Running a diagnostic can be a great place to begin. Grab whatever data you can and begin to analyze it to identify a small series of outliers and to see where opportunities may exist. Correcting these outliers may self-fund additional projects.
  • Connect the dots. Investigate how the analytic outputs can be layered into the business functions (like marketing, sales, and finance), how they might impact organization and governance, and where technology should (and should not) play a role so the organization is better prepared to understand pricing from several angles.
  • Aggregate the opportunities. Once you’ve explored these angles, you can hone in on the specific projects you should undertake next to achieve improved impact moving forward.

1 Source: Getting pricing right. The value of a multifaceted approach. Larry Montan, Terry Kuester, and Julie Meehan.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

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