How to leverage pricing automation for consumer insights and market intelligence
Highlights
- Pricing automation is a powerful tool that utilizes data-driven insights to optimize pricing strategies, enhancing profitability and competitiveness.
- It enables businesses to collect and analyze data from various sources, adjust prices dynamically, segment customers, and benchmark against competitors.
- Overcoming the challenges of pricing automation requires a strategic, holistic approach, transparent solutions, and ongoing collaboration across various functions within the organization.
Pricing is one of the most important drivers of profitability and competitive advantage for any business. However, businesses still rely on manual or outdated methods of pricing, which can lead to inefficiencies, errors, and missed opportunities. Pricing automation is the process of using intelligent and automated systems to determine optimal prices based on predefined rules, constraints, and data inputs. It can help businesses achieve flexibility, efficiency, and agility in their pricing strategies, as well as gain valuable insights into consumer behavior and market dynamics.
Harnessing data for informed pricing
One of the key benefits of pricing automation is that it can help businesses collect and analyze data from various sources, such as competitors, customers, suppliers, demand, costs, and inventory. This data can then be used to optimize prices according to different scenarios, objectives, and conditions. For example, automated pricing can help businesses adjust prices dynamically based on changes in demand, supply, seasonality, promotions, or events. Pricing automation can also help businesses segment customers based on their preferences, willingness to pay, loyalty or purchase history, and offer personalized or differentiated prices accordingly.
Enhancing market intelligence
Another benefit of pricing automation is that it can help businesses improve their market intelligence and consumer insights. By using pricing automation tools, businesses can monitor and track the performance of their pricing strategies, as well as the impact of their prices on key metrics such as sales volume, revenue, profit margin, customer satisfaction, and retention. Automated pricing can also help businesses benchmark their prices against competitors and industry standards and identify gaps or opportunities for improvement. Pricing automation can also help businesses test and experiment with different pricing scenarios and hypotheses and measure the results and outcomes.
Navigating the challenges
One of the challenges of pricing automation is that it requires a combination of science and art, as well as a mix of skills and roles. Pricing automation solutions can vary in terms of complexity, transparency, and functionality, depending on the vendor and the user. Some solutions may use proprietary algorithms or black-box approaches that are not accessible or understandable to the user. Other solutions may use transparent or glass box approaches that allow the user to see and modify the pricing logic and rules. Therefore, it is important for businesses to choose the right system that suits their needs and goals, as well as their level of expertise and involvement.
A holistic approach
Another challenge of pricing automation is that it requires a holistic and strategic approach that aligns with the business vision and values. Pricing automation is not a one-time or isolated project, but an ongoing discipline that requires proper planning, coordination, and governance. Pricing automation also requires collaboration and communication across different functions and stakeholders within the organization, such as marketing, sales, finance, operations, and IT. Pricing automation also requires constant monitoring, evaluation, and adjustment to ensure that the prices are effective, relevant, and consistent with the market conditions and customer expectations.
Pricing automation in competitive sectors
Pricing automation is a powerful tool that can help businesses gain a competitive edge in the fast-moving consumer goods (FMCG), e-commerce, and quick commerce sectors. These sectors are characterized by high competition, low margins, high volumes, and high customer expectations. Pricing automation can help businesses in these sectors optimize their prices for different products, channels, markets, and segments, as well as respond quickly to changes in demand or supply. For instance, we aided a leading beauty products provider in adopting pricing automation to optimize its prices for over 10 million products across 15 countries. This helped the provider increase its revenue by 12%, its profit margin by 9%, and its market share by 5%.
Pricing automation is not a magic bullet that can solve all the pricing challenges or guarantee success. However, it is a valuable solution that can help businesses improve their pricing capabilities and outcomes. By using pricing automation tools, businesses can leverage data-driven insights to make smarter pricing decisions that enhance their profitability and competitiveness.
Based on insights by Narayanaswamy Subramanian, Associate Vice President, Products.
