Pricing and Digitization

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Pricing and Digitization

Parallel Journeys to Success and Survival

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By: Kevin McCabe, Director of Pricing Strategy

Pricing transformations are implemented by

businesses in order to capture value more quickly

and effectively. It goes without saying that B2B

pricing excellence is dependent on accuracy,

attention to detail, and velocity – That are all made

possible by Digital Pricing Transformations.

Companies in the B2B sector are increasingly

employing price optimization and management

strategies throughout the entire value chain.

Businesses may underestimate the relevance of

digital tools, overemphasize them, or design ad hoc

solutions that don't work well together as a result of

their inexperience and bias. Subsequently, even

companies keen to engage in technology struggle to

adopt their pricing strategies into something that is

value-based and reflective of value to their

customers.

Digital transformation is a broad term used to refer

to significant technological changes across human

resource, supply chain, customer service, marketing,

and finance systems. A digital transformation can

take many forms, from adding e-commerce options

to providing new digital offerings, to moving internal

systems to the cloud. It should also be an

opportunity for innovation and better pricing. As a

company digitizes, they can increase their capability

to monetize assets and optimize their existing data

to better inform pricing decisions (and value

capture). This in turn makes pricing a prospective

part of the transformation journey.

This whitepaper will focus on how to combine

digitization, transaction level data and smart pricing.

The potential impact of doing so is immense. In fact,

our clients who do so consistently enhance EBITA

by 3-5%. We will explain how. Specifically, we'll

look at how pricing, marketing and sales can benefit

from better data capabilities and use that data to

increase customer segmentation, simplify the

current pricing environment, reduce noise in the

pricing/sales process and better understand

consumer behavior.



Parallel Journeys to Success and Survival

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Monetization



Too often businesses take a digital innovation to the marketplace

without changing their traditional pricing models. In fact, because the

innovation is digital, there is a significant opportunity to identify the

crucial data which could improve segmentation and pricing models in

the future. The profits captured through innovation when pricing is

properly considered are significant. Mulling over the digital data

elements that can be captured as part of an innovative product or

service offering, enables the organization to change pricing much

more frequently, with less administrative effort, and this more

dynamic pricing capability will quickly optimize profits.

For businesses with a long successful history of manufacturing and

selling components or machines, the monetization of data can be

missed. In 2017, a software client that sold both hardware and

software, was faced with a daunting question – why was there no

increase in ROS despite the annual investment in making devices sold

to the building and airport security operations smarter. The sales team

and dealer network were designed to make money installing many

small components, the smart software was just a plug in for

monitoring. In fact, these components with the right intelligence

formed a smart network capturing critical security data. After a 3-

month pricing strategy assessment and design, and feeling the weight

of change and opportunity, the business in a short period of time

shifted their focus, purchased a smaller firm with the requisite data

focus and quickly entered the SaaS marketplace.

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More Data!

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Dynamic and more dynamic pricing is often a long-term vision,

especially for B2C companies. To begin that pricing journey

you'll need access to more data. Both consumer and industrial

companies are investing in innovations that are dependent on

increasing their digital capability – the collection, consumption

and analysis of the data. When IoT or cloud-based solutions are

included as part of a company's value creation, capturing that

new value they are bringing to the market will require changes in

the existing pricing environment. Ideally, these innovations

prompt changes throughout the organization as well the

customer's experience and buying behavior.

A successful transformation requires auditing internal data and

systems, considering what external data is needed and

identifying new capabilities that can better meet the

organization's needs. When doing so, consider each aspect of

change through the many lenses of your organization. When the

right infrastructure elements are in place to enable collection of

the data that's required to inform pricing decisions, the process

will provide measurably improved profits with sustainable

performance improvement.

While the exact data fields required will vary by industry and

organization, it generally requires the identification of fields that

will signal relative differences between customers and products

to inform pricing strategy and tactical pricing decisions. Highly

skilled teams will generally put their attention on transaction level

details including customer and product attributes, net margin

details, customer profile and cost-to-serve elements.

Client Example

There is much more data

available to organizations than

ever before, that is, if you have

the systems in place to collect

that information. You also need

to collect the right data and to

act and react to that data

appropriately. In some cases, the

data may already exist, in other

parts of the company but may be

neglected where pricing

decisions are made.

Why wait? Start collecting and

using that data now. One of

our SaaS clients had collected a

lot of data around software

subscriptions as part of their

digital transformation, but there

was a data gap when it came to

actual software usage. That client

is now working on building

capabilities to understand how

their customers use their

software, which will further

inform their pricing optimization

decisions and ensure a

sustainable pricing capability

moving forward.

Even before you expand your

data-capture capabilities there

are some analytical and

visualization tools you can use

immediately for discovery of

pricing opportunities (like

Tableau and Power BI). Focus on

key data analytics, customer

value drivers, pricing

transparency, and pricing

controls as a place to start.

Pricing and Digitalization – More Data

There’s no reason to wait

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https://www.tableau.com/

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Of course, you don't know what you don't know! That's one of

the reasons these transformations are so tough. Most businesses

don't know what information they have or need that could

improve their pricing practices. Consider the types of data

previously mentioned and ask these four questions as part of

your journey:

What should you do if you don't have the data you need to address pricing?

In our experience, some data usually does exist, it just hasn't

been applied to pricing. To supplement whatever data you have,

there is also the opportunity to conducting market and value

research. Doing so can provide insights like how price sensitive

customers react to your most expensive and least expensive

products or services.

What should you do with the data that you already have (or will eventually have)?

The data that will factor into your pricing decisions and how you

use that data will change depending on the product or service

that is being sold. For example, if you're selling custom

manufactured versus highly standardized widgets, then the data

points you should collect and use to inform your pricing strategy

will be different. That's why there's no one-size-fits-all approach

to pricing. Each pricing transformation our clients undertake is

unique and requires a customized approach.

What additional pricing-related data should you consider?

There are likely data-points that you may not have even

considered that could increase your pricing power. These

include:

• Volatility of market

• Site location

• Demographics

• Buyer behavior type

• Velocity by product (how frequently a customer orders).

Like many of our clients, you may realize through this journey

that you need a lot more information about how customers use

your products or services. We identify the data needed to

conduct the level of analysis that will best guide the pricing

transformation. The result is a new trajectory for pricing’s

contribution to profit performance with an opportunity to

manage price not once a year, but every minute of every day

should you choose. With a pricing transformation in place, you'll

be able to identify pricing power, drive smarter promotions, and

increase the frequency with which you can make pricing

changes, amongst other benefits.

What can you do now, while you gather the needed data?

In the meantime, there are other areas to analyze that will drive

revenue and recoup costs, like reducing price leakages,

managing cost-to-serve and establishing greater pricing controls

across the organization.

You don’t know what you don’t know


©Iris Pricing Solutions Ltd. | pricingsolutions.com6

For many organizations, a lack of data isn't the problem, the bigger

challenge is the inability of different internal systems to communicate

with each other. This is especially the case between enterprise resource

planning systems (ERPs) which govern transactions, orders, invoices,

etc. and customer relationship management systems (CRMs). When

these two systems don't communicate with each other it becomes

difficult to map transactions to customer data (which can inform your

pricing decisions).

Consider this scenario of pricing flexibility that comes from marrying

different systems across your organization. We created a pricing app for

one manufacturer that included a direct feed from their ERP. One of

their sales reps was on her way to renew a contract at a large

automotive OEM account. Prior to getting out of the car she looked at

the pricing strategy app on her phone which provided her with a real

time feed from the company's ERP systems. Looking at the

performance year-to-date allowed her to accurately forecast year-end

performance against goals under different discount scenarios for this

client. She knew in real-time the discount range she could work with

during her negotiations.

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Getting your data in shape



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Having a customer ID attached to individual transactions , especially for those in e-

commerce or the restaurant industry through loyalty programs or food delivery

services, is very valuable for price optimization. With purchases being made online it ispossible to know each individual customer and what they purchase, data that is a gold

mine for pricing and other elements. There are so many things you can do to drive

revenue when you know who is behind each ticket.

The challenge is collecting, managing, and making sense of this data, and companies

that do this well have a huge advantage. Starbucks, for example, has had a loyalty

program in place for many years which has given them a lot of valuable information

about their clients. As of 2019 their rewards program had 16 million active users, and

the company attributed 40% of its total sales to the program (source: Digital Initiative).

Available on mobile devices as the Starbucks app, the investment the company made

in creating a mobile app added value for consumers and ultimately increased their

frequency and spend (source: Digital Initiative).

We are seeing value creation initiatives in manufacturing through the Industrial Internet

of Things (IOT) necessitating this level of end user activity tracking. One example are

monitoring sensors that are now commonly placed on hardware assets so that a

company can access more operational and telemetry data. This is a new area of value

creation that is only optimized when there's a corresponding change in value capture.

In this example, it's important that the company also set up processes to collect and

build offerings on the value of the data that's being produced by monitoring devices.

Organizations will ideally run their pricing through digital platforms, which will enable

them to make informed pricing solutions very rapidly. For example, with greater

pricing precision a company knows exactly when and how to run a promotion (day,

time, length, and geographical locations). On the other hand, companies that lack

pricing precision won't know how effective their promotions are because their data

isn't returned until after the promotion is over. Including value capture as part of your

value creation can enable you to have real-time insights that will inform future pricing

strategies.

Monetize digital offerings

Attach a customer ID to individual transactions

Collect real-time data

Innovation often spurs an increase or change in digital offerings. Many

companies believe that commercial and monetization models are changing; it's

not so much that the model itself is shifting, its more that the transactions (and

details!) across direct, distributor, e-commerce and omni-channels are changing.

Businesses have worked traditionally with distributors or manufacturers and are

now looking to get into Software as a Service (SaaS). Their challenge is they

need to know more and understand the end user better to make subscriptions

and SaaS work yet the legacy customer relationship, still active today, was not

built to collect the data needed to inform them about the customer at the level

now needed.

The solution is to look at pricing in tandem with digital offerings. For example,

the medical devices industry is moving rapidly into the IoT space, which requires

a digital capability. The usage data that comes from IoT is good information for

value-based pricing, which many companies in the industry are missing. So,

although these companies are exploring IoT to improve products and create

value, they haven't necessarily thought of these shifts in terms of the change in

type of value delivered to the customer and how to optimize value-based

pricing. They are either missing out on monetizing their investments in new

products and services or are looking to monetize at a point that's rather late in

the customer journey.



https://digital.hbs.edu/platform-digit/submission/starbucks-winning-on-rewards-loyalty-and-data/

https://digital.hbs.edu/platform-digit/submission/starbucks-winning-on-rewards-loyalty-and-data/

When pricing considerations are included in your value creation you can build a

road map to improve your pricing year over year, so when you are fully digitized

it's not an expensive process to gather the pricing-related data you need. We

name this activity value capture or design-to-price. Of course, this long-term

strategy requires you to harness the power of data science while increasing

your data capabilities. When you strategically use the data you've collected,

you'll uncover deeper insights that drive more precise pricing. When data

science is optimized, your company can spend more time on the analytics of

predictive performance while reducing the number of hours spent administering

pricing.

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Using Data Science


Pricing and Digitalization

The Key Take Away

Considering value capture in your digital transformation initiative will

reduce the confusion and complexity of pricing within your business

itself, while increasing pricing precision and sophistication.

According to the International Data Corporation (IDC), worldwide

spending on digital transformation will reach $2.3 trillion in 2023. Those

companies who have already invested in a digital transformation journey

may feel concerned about having the available resources –people, time,

and budget–to improve pricing strategies, too. Although there's an

investment involved, when you increase your overall pricing capabilities

you will ultimately see higher profit margins at lower operating costs.

Pricing is an essential consideration no matter where you are in your

journey because that is where you will see the greatest returns and

profitability. Looking at value capture now means that your

transformation will increase your EBITDA immediately. In fact, a

business that addresses the pricing decision-making legacy to focus on

value capture will often improve revenue capture by 3-5%...which can increase 20% or more. The time to begin is now.

Contact the Pricing Solutions team to focus on value capture with data-

driven pricing that will increase your profitability, no matter your current

capabilities.

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About the Author Kevin McCabe, Director of Pricing Strategy

Kevin McCabe, leads the pricing strategy practice at Iris Pricing Solutions and is responsible for overall Project Management and Strategy Development. He has over 2o years of pricing experience helping build value and pricing capabilities in Fortune 500 Companies. With over 50 projects completed, his experience extends to companies in technology, data, manufacturing, FMCG, software, and financial services companies.

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About Iris Pricing Solutions

At Pricing Solutions, it is our mission to dramatically improve client’s profitability and market share through improved pricing. We have grown to become one of the world’s leading pricing consultancies with offices in North America, Europe, the United Kingdom, Asia Pacific and Latin America.

We focus on all of pricing, and only pricing!

Pricing Solutions specializes in four core services:

Pricing Strategy

Pricing Analytics

Pricing Research

Pricing Training

Contact Us

Global Headquarters

106 Front St. East, Suite 300 Toronto, ON Canada M5A

1E1 Tel: 1.416.943.0505 Fax: 1.416.943.0507

UK Headquarters

10 Queen St Place London EC4R 1BE United Kingdom

Email: [email protected]



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Pricing and Digitization