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The Business Intelligence of Pricing – Part II

Posted at August 3, 2019 | By : | Categories : Blog | 0 Comment

The Business Intelligence of Pricing – Part II

Dean Ciric, Senior Pricing Specialist

August 3, 2019

 

In Part I of this article The Business Intelligence of Pricing – Part I, I introduced the topic of business intelligence and how it pertains to the pricing of goods and services.  We had to develop a pricing model that incorporates business intelligence if we want to stay ahead of our competitors.  In this article, we will discuss how companies need to create business processes to optimize the offered price and adapt to real-time changing market demands.

The experts will tell you that a reasonable pricing model is based on the quality inputs coming from a business intelligence function.  A well-defined pricing process will enable us to determine the pricing information that we expect to come from a business intelligence capability.  Available and valid data is a foundational requirement for optimal and dynamic pricing.  Business intelligence (BI) will provide usable business data in the form of reports and other data sets that are derived from key performance indicators (KPIs).  The organization will be able to leverage decision-making processes based on understanding the outcomes of different alternatives (i.e., which products or services will be offered based on profitability or ability to deliver value for the right price to a customer).  The price is the thermometer of an organization’s process efficiency and market effectiveness to provide value to a customer.

The diagram below illustrates that price is a balance between an organization’s process efficiency to minimize costs and market effectiveness to meet customer expectations.

Price is a variable component of the 4Ps.  Thus, the price has to be set at an equilibrium between Customer perception of value, cost of creating value and competitor offers.

Let me explain this concept by way of an example.  Not all of us can afford to drive a Mercedes.  That’s why we see other car brands on the road.  So, do we buy a Mercedes or another car?  Who provides the most value for the price for different market segments?  In other words, what is the best value for the money spent by a specific market segment?

To create the business processes to optimize offered value and adapt to real-time changing market demands, we need to take the following steps:

I.   Establish BI/Analytics, pricing processes, and supporting IT infrastructure (implemented by IT) as the essential pricing foundation to any pricing capability – based on the complexity of an organization’s specific pricing transactions.

II.  Develop the mindset, behaviors, and capabilities to implement a new dynamic and value-based pricing approach, and introduce new pricing tools to capture a sales teams’ knowledge into the system (from the inception of product development), as well as realign the incentive structures.

III. Mature the organizational structure, internal processes, and performance management (i.e., the digital and advanced analytical skills that are required to develop and maintain an advanced pricing approach by a dedicated pricing group).

The following table illustrates what needs to be completed to achieve a pricing foundation that provides responsive, transparent, and profitable pricing while adapting to the real-time changing market environment:  demand, competition, and costs.  Pricing guidance is provided by different organizational roles, which drive internal and external processes, as illustrated in the table below.

Once we have established a pricing foundation – defined pricing guidance, internal and external pricing processes – we can optimize the offered price and adapt to real-time changing market demands.  A regularly updated and validated pricing foundation is geared to support the decision-making process, allowing the organization to take immediate action by prioritizing and optimizing its resources.

 


Mr. Dean Ciric is a Senior Pricing Specialist with experience in diverse industries, including telecommunications, health, retail, and real estate.  He has held both management and analytical pricing positions for multinational companies in both Europe and Canada.  Dean now resides in Calgary, Alberta where he specializes in pricing process development and business intelligence.

 IT Architects (www.itarchitects.ca) is an information consulting firm specializing in business process optimization, system evolution planning, and the deployment of leading-edge technologies.  If you require further information, Dean can be reached at info@itarchitects.ca or 403-400-6410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix, (graphs in word):

 

 

Customer Perception of Value

Price is defined by

 

 

Price

Cost of Creating Value

Competitor Offer

Organization’s market effectiveness to meet customer expectations

Price

Organization’s process efficiency to minimize costs

Pricing Process, Models, & KPIs