March 11, 2011
A recent research study by the MIT Sloan Management Review and the IBM Institute of Business Value found that, “Top-performing organizations use analytics five times more than the lower performers”. The study titled, Analytics and the New Path to Value, further found improvement of information and analytics was a top priority in their organizations. Not surprisingly, this prioritization was driven by a focus on innovation to achieve competitive differentiation. The study segmented businesses into three categories based on where they are in their analytics journey:
Aspirational – Use analytics to justify actions
Experienced – Use analytics to guide actions
Transformed – Use analytics to prescribe actions
It is interesting to think about pricing analytics in the context of these stages. Based on our experience, we find that most companies are actually at a stage below “aspirational” when it comes to price and margin analytics. In other words, they are not even using the data that they have to justify actions. For example, do salespeople at companies justify a discount for a customer based on past purchase history? Probably not. Does the pricing manager justify prices by evaluating transaction data and market trends? Probably not.
Most of these decisions are made based on instinct rather than insight. It is a recipe that will never give companies the competitive advantage to succeed in today’s hyper-competitive environment.
Companies that take a strategic approach to apply pricing analytics in making business decisions will acquire the competitive advantage they need. For example, a global manufacturing company that used Vendavo solution for pricing analytics identified millions in profit improvement opportunity within weeks. It enabled them to not only capture available opportunity, but also put in place policies to capture additional profits on an ongoing basis. There is no reason why other businesses cannot do the same and accelerate their analytics transformation journey.