This is an interesting study.
Recently, I had a customer with a pricing issue. He sells IT services. He said he wanted to offer the new ‘cloud computing’ solution. He told me all his costs and asked me what price he should charge. I asked him a series of questions – from who the target market will be, why they would be interested in his solution and a lot more. He was surprised and asked why I was going on a tangent: “these are my costs. Can you not tell me how much I should sell it for”.
I think some of the incorrect ways of pricing are: basing it on your costs; basing it on what the ‘market will bear’; basing it on what the competition is selling it for. Customer only cares about what value they are getting from your product/service. If you’ve the right customer and if you’ve the right value, you can charge whatever price you want disregarding your costs, your competition and anything else.
So, what analytics do they use? Analytics on costs? GP?
Source: http://blog.vendavo.com/Blog/bid/60951/Pricing-Analytics-Journey-What-Stage-Are-You-At
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.