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Big Data : Key to better pricing

In the recent past, most companies have recognized the bottom-line impact to be gained through effective pricing. Tapping the full promise of pricing requires an infrastructure to drive real and sustained pricing performance. With such a foundation, a company can establish and strengthen pricing activities by creating deliberate decision processes, a specialized pricing organization, mechanisms that appropriately measure and reward pricing excellence, and vigorous support tools and systems.

A pricing infrastructure can be difficult and costly to create. It requires investing appropriately, empowering the right people, articulating clear targets and goals, and managing risk. Yet the benefits of realizing true pricing excellence are worthwhile: a one-percentage-point improvement in average price of goods and services leads to an 8.7 percent increase in operating profits for the typical Global 1200 company. 

Every company should have a set of pricing metrics that measure the financial and operational health of pricing across the business. These metrics may include simple data, such as the average selling price, discount, and margin for key products; operational data, including the number of pricing exceptions and win/loss percentages; and special measures to track the progress and impact of specific pricing initiatives. While the manager of a single product line may see metrics only for that, the general manager of a business unit sees those same metrics across the operation and can drill down to the level of individual products to understand the root causes of pricing performance.

Without uncovering and acting on the opportunities big data presents, many companies are leaving millions of dollars of profit on the table. The secret to increasing profit margins is to harness big data to find the best price at the product—not category—level, rather than drown in the numbers flood. To read more visit: http://www.mckinsey.com/insights/marketing_sales/using_big_data_to_make_better_pricing_decisions

 

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