You set MRSP of $100 for a product and you feel that the sales are not quite picking up. So now, you lower the price and find out that the sales are increasing. You reduce the price further in hope of sales skyrocketing, it increases, albeit not as rapidly as it did before. Now multiple questions arise in the head of the marketer. But the vital question to ask here is, what is the perfect price point to maximize profit. The magic number is not that easy to generate, even if it was, there are multiple variables affecting it on a daily basis. However, companies can get as close to the magic number as possible, for which, pricing analytics is essential. Apart from getting the perfect number why do we need to use pricing analytics?
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Although there is an abundance of information available to customers today, most companies are still unaware of the habits of their customers. Companies resort to a customer segmentation method, which can help a lot but pricing data goes further. For instance, manufacturers can see improvements in their margin by aligning their pricing along the customer segments. Analyzing past performance can go a long way in improving the present and the future.
Identifying Pricing Opportunities
‘Quick wins’ is one of the ingenious ways of making a profit in a short amount of time by adjusting prices. It can also help identify extra revenue gaining opportunities by fixing the most obvious cases of price misalignment or leakages. Companies can save millions of dollars by identifying pricing opportunity by highlighting unprofitable accounts and realigning the discounts. Although the term may incorporate the word ‘quick’, it often builds the base for long-term pricing efforts and margin increment.
Promotional and Pricing Planning
Marketing promotion and pricing are usually pre-determined and don’t follow a particular strategy. However, companies employing a pricing strategy closely monitor the market and anticipate the impact of price change or a promotional campaign. Such companies use predictive models to create a forecast and measure the deviations against actual results to keep everything systematic. Using such pricing analytics models allows companies to save millions of dollars by putting an end to ineffective promotions and also give accurate insight on pricing.
With the advent of ERP tools, it is now easier to just implement full-fledged profit optimization tools and manage prices and promotions accordingly. However, one should keep in mind that actually optimizing the pricing is not as straightforward as it looks. Having a sound pricing strategy for a long time helps companies to integrate pricing analytics seamlessly to facilitate price optimization.
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Often, the marketing department has a hard time convincing their marketing plan, promotional plan, and marketing budget to their stakeholders. Pricing decisions are even more problematic when it comes to taking approvals from stakeholders from the sales, finance, marketing, and production department. However, backing such decision with pricing analytics data can change their mindset and facilitate the approval process.