The document offers an overview on Pricing analytics and its significance in current scenario with concrete examples and facts

1. Pricing Analytics 1.0
N T T D a t a
G l o b a l I T I n n o v a t o r
1 2 / 1 / 2 0 1 4
Prateek Tyagi,Somya Tripathi
& Tanuj Doshi.
The document offers an overview on Pricing analytics
and its significance in current scenario with concrete
examples and facts.

2. 1
Every organization has something to sell (Product or Service), for a particular group of
customers (Target Market), which they position into a suitable market (Place), at a value which
the consumer must be willing to pay (Price), by creating an awareness of its need and
obtainability (Promotion).
It is a simple concept of Marketing Mix in which these four „Ps‟ i.e. Product, Price, Place &
Promotion are adjusted and an optimal combination is created to fulfill the consumer needs as
well as generating reasonable profits for the organization.
“An important fact here to notice is that „Price‟ is the only element which produces revenue and
determines a firm‟s profitability and market position, while all the other elements represent
costs.”
However, the reality is that the Pricing element is the most neglected element of the marketing
mix because of which organizations are unable to unlock the true market potential and often lead
to missed opportunities and falling margins.
Due to the absence of devoted pricing team, the pricing decisions are often segmented into
various departments based on various non-related factors which lead to misinterpretation of
actual worth of their product or service. Soon the organizations become more focused on their
own cost rather than customer value and perception which again lead to missed opportunities.
Sources:
[1] Data from the Professional Pricing Society (PPS), the world‟s largest organization dedicated to pricing
“Only 5% of Fortune 500 companies have a dedicated team to do the pricing analysis
and only 9% of business schools have a dedicated course on pricing techniques.”[1]

3. 2
The right way to do the pricing is the „Value based pricing‟. [2]
The factors which effect the pricing decisions are:
Sources:
[2] Marketing Management by Philip Kotler - 13ed (a South Asian Perspective)

4. 3
Ideally, all the above factors should be considered while making a pricing decision by an
organization but usually organizations miss out a few factors.
Data and knowledge are keys in today‟s global competitive environment. In this global village, it
is very necessary to stay ahead of competitors. The quantity of data available today is huge and
large number of transactions keeps on adding every day. This huge data can form the basis of
more profitable pricing analytics.
The term pricing analytics in itself is an in depth concept which will help business improve their
pricing strategies and will form a tool to control pricing for marketing and finance department.
With pricing analytics, companies can unlock new business prospects and improve their market
share. Any small change in price will hamper the flow of business-a dip in price will be
detrimental for the company‟s margin whereas the opposite will be beneficial for the
organization. But in any case, customers are affected. So it is very important that there should be
an enterprise wide standard pricing model that helps an organization to set the optimum price
and hence create a win-win situation for both the organization as well as the customers.
The answer to pricing analytics lies with the customers. Customers have now all access to find
out all offers and best prices. Through pricing analytics, we aim to accurately predict the future
and best prices to improve profitability. Using this analytics, business can make better decisions
by transforming the data to information and use these insights for powerful pricing. Hence
decision makers can make the most of these insights to maximize profitability and increase
customer base with wide offers.
“A small change in price affects directly the operating profit”
“Pricing Analytics could be one possible solution which can help the organizations to make
an optimal decision by capturing all the required factors.”

5. 4
Importance:
One of the major factors that will attract a potential customer to buy the product is “price”. It is
very necessary that a company should focus on consumer insights and then quantify their needs
into action. Pricing analytics tools and techniques will cover the much needed consumer insights
and will help in setting an optimal price. It will help organizations do much needed “what-if”
scenarios and see how their customers will behave for different pricing options.
Pricing analytics techniques are very less adopted in today‟s organization, making it the least
used profitable strategy. But to increase the impact of this strategy, organizations should not only
develop an enterprise wide pricing strategy, but also enhance it time to time based on current
market scenarios. With internet penetration shooting up, it is always going to be customer‟s
upper hand in comparing prices of two companies offering the same product. Better the value
offering, higher the sales. Hence pricing analytics will keep organizations always ahead of
competitors and first choice for the consumers.
The questions related to pricing which all the organizations face can be categorized into two
classes.
“Pricing analytics is a simple technique which will help make complex pricing strategies
without any difficulty”

6. 5
Most of the organizations today use the traditional analytical tools and techniques to enhance
their decision making process but pricing is one such area which needs a real time analysis.
Traditional tools often lack real time analysis capability. Hence, companies render the services of
third party experts to help them in their pricing related issues but third party helps companies
only at a point of time when problem arises.
Pricing analytics is one such thing which will help the companies in making real time decisions
with proper tools and techniques in place. Also, it will help setting a culture of “informed and
calculated decisions” rather than “guess work”.
By using optimal pricing decisions, which results from pricing analytics, it provides the
organization with multi-million dollar opportunities to drive incremental sales and profit.
For example, Johnson & Johnson medical device subsidiary was able to achieve a 6% increase in
every selling price at a time when competitors had suffered 11% price erosion. Johnson &
Johnson was able to achieve this because of successful pricing analytics implementation. [4]
Sources:
[3] http://mma.com/expertise/pricing-analytics/
[4] http://data-informed.com/b2b-firms-inject-data-analytics-into-pricing-where-instinct-has ruled/
“It has been well proved that by implementing predictive pricing models and tools,
companies can achieve 15-20% improvement in their price and promotion investment
while 1-3% increased sales and 2-5% increased margin.”[3]

7. 6
The real usefulness of pricing analytics for setting prices of a product or a service comes into
picture when the following things come into scene and they collide-
But all these three key distinct themes know whatever the case is, customer retention is vital.
Hence data informed decision (analytics + pricing) makes them what to charge from customer.
While pricing the product or service, organizations need to understand-
 Pricing analytics is not only about pricing
Companies can use this technique to get in more sales and hence increasing
profitability or in other words, company can reduce the loss of sales due to high
pricing and gain on margins.
Also with the huge data available, strategies for “cross-selling” and “upselling”
can be formulated so as to get new business.
 Segment then sell
Both at HP & British Caterer 3663, first they combine analytics related to
segment and then apply pricing analytics to know price proposition and product
attractiveness.
Pricing analytics may suggest an “expert” price perhaps to be used as a starting
point or achieved by an expert sales person.

8. 7
British Caterers 3663-At a floor price, sales person will be instructed to walk
away and in between there is a “target price” which represents good deal with an
acceptable margin.
By pricing analytics, HP gives way to “price bracketing” for different segments.[5]
http://data-informed.com/b2b-firms-inject-data-analytics-into-pricing-where-instinct-has-ruled/
To say pricing analytics will:
 Boost the profitability by helping companies unlock the potential opportunities.
 Standardize enterprise wise pricing strategies thus improving the margins.
 Optimize costs and increase margins.
 Unlock new margin improvement opportunities.
 Help in making calculated and informed pricing decisions.
Pricing Analytics not only provides information about the extent to which pricing can be
improved but it also provides guidance on strategies for closing the gap between current prices
and those which can theoretically achieved.
For example:
Finnish Chemicals, by implementing pricing analytics they closed 5-10% gap that they saw
between target prices and achieved prices. [6]
Sources:
[5][6] http://data-informed.com/b2b-firms-inject-data-analytics-into-pricing-where-instinct-has ruled/
“By using PROS-a pricing analytic and optimization tool, we started focusing on missed deals
through pricing offers and bundles of product and also started focusing on customer expectations
and affordability.”- British Caterers 3663

9. 8
Following is the real time usage of pricing analytics concepts and tools by ‘InterContinental
Group of Hotels’ [7]
About Organization: It is the largest hotel company in the world in terms of number of rooms.
Their revenue management department developed its own revenue management or price
optimization tool by linking pricing data and analytics.
Problem: Major problem faced by them was that they were focusing on inventory optimization.
They were charging price for each room based on the available inventory. Hence they were not
able to unlock the correct price to be charged for each room. In the absence of a correct price
determinant either they were missing consumer surplus or they were missing the unaccomodated
demand.
Principle Challenge:
Complexity in pricing decisions
76,000+
pricing
decisions/hote
l/day
Days of
Week
Seasonality
Group
Competitio
n
Occupancy
Level
Customer
Feedback
“For entire IHG portfolio pricing decisions per day are worth over 273 million.”

10. 9
Solution: They developed an integrated revenue management tool which combined
capacity/demand, competition & price sensitivity, which are the three basic pillars of optimal
demand and price management. It was different from traditional revenue management tool which
takes care of first pillar-capacity demand. The modules which were introduced in their business
flow process were-
 Market response module
Calculates price sensitivity
 Competitive rates modules
It eliminates the need of 3rd
party data provider and saves huge amount of money
 Price optimization engine
Value Proposition:
Benefits:
 They measured an increase of 2.7% in RevPar [Revenue per available room] in 2009 as
compared to industry standards.
 It helped IHG to take guess work out of pricing and strengthen their ability to make
pricing decision that bolstered their bottom line results and offer market driven rate to
guest.
Strong desire to establish new vision for revenue management at IHG
Quantification of benefits is critical
It needs to have world class capability
Foremost Challenge: Hotel Acceptance
Price Optimization could be huge win for IHG

11. 10
 Another metrics-revenue generation index showed a 3% improvement as compared to
competition.
Sources:
[7] https://www.youtube.com/watch?v=KpjWMYKGxxY
“According to third party analyst, if revenue management tool is applied to 40% of the franchise‟s
hotel, it would add 1.5% more to profit before tax”