Exploring a data-fusion approach for holistic pricing decisions
Whether you’re introducing a new SKU or reacting to a market change, managing your pricing strategy can often feel like a complicated balancing act.
You know solid revenue decisions should be grounded in sound data, but that input often comes from a variety of sources and stakeholders.
While consumer price elasticity insights may suggest one course of action, brand tracker data, historical sales figures or even management’s “gut feel” can often derail your pricing decision. How you apply these various inputs can affect the success – or failure – of a single pricing decision on your bottom line.
Heineken’s Revenue Management Lead for Africa, Middle East, and Eastern Europe, Jorge Roberto Salas Samamé sums it up best: “Pricing is truly a holistic and cross-functional discipline.
The pace at which consumer preferences and the overall industry is moving requires a structured and multi-lens approach to deliver robust pricing recommendations.”
So, how can you best leverage all company data in a more holistic way to increase revenue and profitability?
The theory behind making holistic pricing decisions (e.g. net revenue management) is widely accepted, but in an age of big data, implementing this approach in reality is quite challenging.
Some companies, like Heineken and McDonald’s, are doing this exceptionally well today and are reaping the returns.
“Combining macro indicators, consumer/shopper insights, price sensitivity, brand health indicators, customer strategies, financials and overall market trends enables holistic pricing decisions,” says Heineken’s Roberto Salas Samamé.
Beyond embracing a new pricing mindset, they’ve adopted the SKIM data-fusion approach to enable this shift. This approach is steeped in methodological rigor and built on decades of pricing know-how from partnering with top consumer goods companies and consultancy firms around the world.
At the EPP Monetized Pricing Conference 2019, I shared how a new pricing mindset, combined with our unique data-fusion approach, can help you make more informed, more accurate – and even more fun! – pricing decisions.
Here’s what you need to know.
Tackling the most common pricing and revenue management pitfalls
Over the last 40 years, we’ve helped leading companies answer their most challenging pricing and revenue management questions. Along this journey, clients increasingly ask us to consider not only our own research findings, but also all available data, when helping them optimize their revenue strategies.
This holistic approach of aggregating multiple data sources also allows our team to align with clients on their overall company strategy and vision (vs. solely on brands) and provide even richer insights.
I’m really passionate about this “holistic” approach to revenue management decisions, so clients often ask me what they should and shouldn’t be doing in this area.
I’ll start by sharing the pricing pitfalls I often advise clients to avoid.
Do either of these scenarios sound familiar?
1) Not leveraging the wealth of available data sources
The proliferation of data available to inform strategic pricing decisions is staggering, yet some companies still rely on only one or two data sources. Which of these sources most influence your revenue strategy?
- Historical sales data
- Conjoint research
- Competitive intelligence
- Brand trackers
- Management gut instinct / internal expert opinions
- Segmentation research
- Cost of goods
- Social listening
- Theoretical pricing frameworks (e.g. economic theories, round pricing, anchor pricing etc.)
While these inputs are all capable of yielding invaluable pricing insights, not every company will have the analytical capability to aggregate and analyze multiple data sources.
2) Fragmented decision-making
Often, if multiple datasets are considered, they’re often analyzed separately, by different stakeholders and usually at disparate points in the year. You might be consulting the right sources, but since the data lacks context, it’s not giving you the complete picture.
The result is that pricing decisions, can often turn into pricing “debates.” Stakeholders can be quite steadfast about their point of view and can dig in on their position.
A more holistic approach would allow you to consider all the angles, producing more reliable insights and better pricing decisions.
How can you get started?
Exploring the stages of pricing research
If you’re interested in taking a new, holistic approach to pricing decisions, it can be helpful to liken it to taking a journey through various stages.
- Stage 1: Traditional siloed pricing decision making
Insights generated from single data sets and delivered via presentations and individual meetings
- Stage 2: Enter Holistic Revenue Management Mindset
Asses and aggregate all available data sources at one collective time during an in-person workshop
- Stage 3: Holistic Revenue Management Analysis
Blend all available data sources with advanced analytics and conduct in-person wargaming exercises
- Stage 4: Dynamic Holistic Revenue Management
Automated blending of data sources
On this journey, you’ll move from a ‘traditional’ approach with single data sets, to a pricing strategy that combines, then blends, and eventually automates the integration of all data sources.
The SKIM approach to enable this pricing journey is to facilitate in-person data-fusion workshops.
We’ve conducted these workshops for clients ranging from leading international food and beverage brands to restaurant chains. At the end of these workshops we see smiles across the faces of various stakeholders (e.g. insights, category management etc.) as they’re able to leave the room having decided on ONE price point to implement
This technique works well because it brings the holistic pricing mindset from theory to practice.
SKIM is able to not only deliver outstanding data and insights, but are a valuable partner in the creation of the holistic strategy. From the approach, to the evaluation of all available data and the strategy creation,” says Marjolijn Maas-Mook, Marketing Manager, Food Development & Consumer Insights, McDonald’s Nederland B.V.
Depending on where you are in your pricing journey, you may find yourself ready to transition to Stage 2 or even jump right to Stage 3
Traditional and siloed pricing decision making (Presentations)
Companies that find themselves in stage 1 often make siloed pricing decisions throughout the year. They analyze various data sources across stakeholder groups and often deliver these insights to different groups via individual presentations. Often times the same stakeholders lack a comprehensive view across all data that will affect revenue management strategies.
Enter Holistic Revenue Management Mindset: Aggregating data sources (Workshop)
The first step to usher in a new pricing mindset is to asses and aggregate all available data sources at one collective time.
We recommend a traditional workshop where various stakeholders (e.g. marketing, finance, pricing, etc.) share presentations on their respective data (e.g. brand tracker data, segmentation, conjoint, competitor intelligence, trade tax and contracts etc.)
Having facilitated these all-day sessions for clients, we saw first-hand that simply linking these disparate data sources revealed pricing insights which would have otherwise been overlooked.
According to Jorge Roberto Salas Samamé, “what ultimately unlocks the full potential of pricing is cross-functional collaboration; the involvement of multiple stakeholders facilitates connecting all lenses and results in an optimal pricing strategy.”
Heineken’s Revenue Management Lead added: “SKIM has supported us and played a key role in this journey via co-hosting several workshops and bringing an external view and their expertise to further optimize our recommendations.”
Holistic Revenue Management Analysis: Blending data sources (Wargaming exercises)
For this stage, we created wargaming workshops to more efficiently incorporate different data sources and make the process a bit more fun and engaging!
Corporate wargaming simulates moves and countermoves in a commercial team setting. Teams of decision makers roleplay various scenarios to consider how the company and competitors will react to changes and to each other.
We equip each team (brand + competition) with various data sets and/or the SKIM data-fusion pricing simulator, a dynamic pricing model which fuses the data in real-time. The tool generates highly accurate predictions of the results in different scenarios, such as what happens to volume or share when you raise/lower prices and responses from competitors.
Armed with data, we send the teams off to their respective ‘headquarters’ rooms.
We’ve seen participants take the ‘game’ very seriously (e.g. outfitting the rooms in the competition’s branding etc.) because it can really produce some surprises! Getting in your competitors’ shoes can be very revealing.
By offering multiple scenarios (new product introductions, promotions change etc.), you’ll learn how to consider different data sources alongside one another.
In practice you’ll see how each data source has its own strengths and weaknesses. Sources might include conjoint results, sales data and different tax structures. The cost of goods will help indicate your true profits, not just revenues. Segmentation data, distribution and market costs help make predictions in cases where a new product is being launched.
The outcome of this stage is you see an accurate, data-driven view of the potential outcomes and profits resulting from shifting your pricing strategies.
Dynamic Holistic Revenue Management: Automated blending of data sources
Looking ahead, we see these workshops evolving and incorporating automation and Machine Learning techniques into the data-fusion tool.
In this stage, we liken our SKIM simulator to a living organism that can guide your pricing strategy on a more regular basis. For example, all pricing and competitor scenarios are automated. You would be able to realize dynamic pricing per region, country or even day parts.
Results: the impact of a new pricing mindset
Shifting your company’s pricing mindset to a more holistic view is no small feat. However, once you commit to this journey, we’re confident you’ll reap the returns.
For some clients we conduct these workshops once a year, for others more often. Our workshop can be repeated as often as required, depending on the competitive situation or pace of change for your industry.
Regardless of the timing, the overall success of this approach is dependent on the involvement of all key stakeholders. Without the right people in the room, your decisions will be less accurate, and you won’t necessarily have buy-in.
You must gather the right data, the right people and fuse them together!