Pricing

What Are You Trying To Optimize?

By James Marland
April 4, 2012

I see these new programmable lifts everywhere these days: the ones where you key in your floor and are directed to a particular lift. It takes me back to my very first programming assignment at school, in those days when kids learnt to program in Basic. The challenge was to come up with an optimal lift program. I failed the assignment as I was unable todecide what I was trying to optimize: total wait time, maximum wait or lift efficiency. It got me thinking in general about deciding what t0 optimize.

In B2C retailers often are trying to optimize total gross margin, but at times may choose to undertake brand building for a retailer, go for footfall or other objectives.

In B2B, the list of things you may be trying to optimize may be even more extensive, which is why reaching for an optimization tool may be premature. Before you send in the mathematicians have you really considered your goals for each segment?

Segmentation models themselves should be constructed such that business strategies can be executed, rather than being some mathematical artifact that is impossible to explain. Also, some optimization techniques ruthlessly apply margin maximization algorithms which may be inappropriate in a segment for which volume growth, market share or customer retention is more important. You should consider a framework whereby business owners are allowed to express their strategy for a segment, and use this to refine the price guidance. Now, where is that lift?

– James Marland

  • B2B Pricing , Price Lift , Price Optimization , segmentation

    James Marland

    James Marland is the Director of Business Consulting at Vendavo based in London. In this role he helps diagnose Pricing Opportunities and develops business cases for pricing projects with ROI models. James has been in the pricing software space for many years, both on the customer and supply chain side: so he has a view from “each side of the table”. Prior to his pricing career he was VP of Solutions at Ariba and has also spent 5 years at SAP America. He has a Bachelor of Science degree in Mathematics from the University of Southampton.