Pricing

Less Pain, More Profit

By Robert Irwin
May 13, 2014

Do you ever wonder why you are not getting more out of your pricing analytics? Are you finding the adoption of your new or even old analytics solutions a challenge?

It’s time to think about 3 things:

1. Adopting Statistics to Reduce Analysis Time and Improve Accuracy

Statistics and advanced statistical analysis are being used in a variety of industries to great effect. From Baseball, to Politics, to Black Jack they are game changers to establish a competitive advantage.

BaseballBilly Beane

Billy Beane was the GM at Oakland A’s and his story has been captured in the book Moneyball, by Michael Lewis and the film of the same name.  Traditionally in baseball to grow the team, a group of target players are identified based on a Scout’s assessment and some average statistics. This meant that all teams were basically identifying the same set of target players.  All things being equal, the team with the most financial clout will always be able to afford more and ‘better’ players.

Billy realised that the Oakland A’s were never going to be able to compete financially – they needed to think differently. He understood that the most important element of the game was actually to ‘get on base’, which increased the probability of scoring and winning.  He adopted a different approach and used advanced statistical analysis to evaluate players based on their percentage ‘on base’ performance – players everyone else overlooked.

In 2002, the Oakland A’s completed a 20 game winning streak. The first time since the Chicago Cubs completed the same feat in 1935. They outscored other teams 141 to 65 and on a payroll of $42M vs the Yankees payroll of $126M in that year.

PoliticsDan Wagner

Dan Wagner was responsible for collecting voter information and analysing it in the Obama Campaign HQ. Two years after Obama was elected, the Democrats suffer their worst defeat in decades. Wagner had predicted it.

He realised the traditional approach of voter polling – i.e. looking at average trends – was flawed.  Leading into the 2nd re-election campaign for Obama, the Democrats realised they needed to change the way they were addressing their supporters and securing votes.  Wagner wrote a set of algorithms to analyse each voter’s probability of voting for Obama and identify the best way to target and secure these voters.

On 13th November 2012, as predicted by Wagner, Obama was re-elected, 322 votes to 206 for Mitt Romney.

Wagner’s story is captured in full by the MIT Technology Review – it’s a fascinating read.

Black JackJeff Ma

Jeff Ma was a member of the famous MIT Blackjack team and his story was captured in the film 21. The group created an ingenious method for counting cards based on talent, creativity and statistics. Jeff Ma now works as a consultant helping companies look at the way they analyse their data.  He states: “It’s about changing emotional gut feel environments and achieving success by gathering the right data and analysing it rationally.”

So, if it’s possible to use Statistics and advanced statistical analysis in Black Jack, Politics and Baseball to gain a competitive advantage, then why not in Pricing?  The answer, of course, is that this is exactly what you should be doing; using Statistics to speed up the opportunity identification process and to become more specific about your analysis, not just relying on average metrics.

2. Defining a Standard, Documented Process to Guide the Analysts

Why do you need a documented process for Analytics? Well, it’s more or less the same reason that when you cook something for the first time you follow a recipe.  You probably follow the recipe the second or even third time; until you know the steps so well that you can cope without.

It’s no different with pricing analytics. The first time you use the solution, you need to be guided; if you want to analyse X, start with Metric A and then follow steps 1 to 4. Repeat. It is an Analytics Playbook; a documented, standardized, repeatable step by step guide to the analytics process that you use until you know the process off by heart. Its going to save your Analysts a lot of time and a lot of frustration.

3. Using Technology to Automate the Opportunity Identification Process

There are three steps to the Analytics process:

– Opportunity Identification

– Evaluation

– Capture

As you know, even with clean data and a state of the art Pricing Analytics solution, identifying the opportunities still takes time.  Using statistics for quick identification can shorten that process, but still leaves a lot of work to do.

As Henry Ford realized in 1908, the major advantage of a standardized, repeatable process is… that you can Automate it.  So, why not with the Opportunity Identification process? This is in fact the future of Pricing Analytics; using a set of automated algorithms, that combine statistics with the automation of a repeatable, standardized Analytics Playbook to generate a list of potential opportunities to improve your Pricing and Margin.

To learn more about how to get the most out of pricing analytics, register for our live webinar this Thursday at 8am Pacific / 11am Eastern.

  • B2B pricing solutions , opportunity identification , pricing analytics , pricing best practices , Profit Discovery , Statistical analysis , statistics

    Robert Irwin

    Robert has worked in Pricing for over 10 years and has spent the last five years at Vendavo helping customers implement and automate their pricing processes, strategies and margin optimization. Before joining Vendavo, Robert was the Global Director of Pricing at a High Tech manufacturer where he developed, built and led the Pricing Organization. He is experienced in leading sales and operations teams in the international business environment and has a proven track record of successfully leading organizations through structural and process change. Robert has an MBA from Wake Forest University and a BA (Hons) in International Business from Sheffield City Polytechnic.