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The Analytic Orientation of Pricing Management

by: Maarten Oosten | January 27, 2020

Reflections while considering a new year, and a new decade in data analysis

Last year, The Professional Pricing Society’s Q2 Journal of Professional Pricing, published an article about the state of the pricing management software industry, identifying several factors that have kept our industry from achieving the rapid growth of other prominent software markets. One of the article’s key suggestions is that pricing management software leaders should place a greater focus on the soft side of pricing: that pricing software alone is not going to solve the structural pricing problems faced by many organizations and there is need for more change management, change leadership, and emotional intelligence among other soft capabilities.

As I look toward a new year, and, in fact, a new decade, I am increasingly convinced of the key role of analytics in this endeavor. And while I do agree with the article’s urge to more intelligence and change leadership, I would like to place it in the context of another important observation: Pricing as an analytic function. The soft side/change efforts must incorporate analytics into the company’s structure and see to it that the staff responsible for business analytic data is independent of IT and business departments—centralized in a department focused on data analytics.

The Analytic Aspect of Pricing Makes the Difference

The analytic aspect of pricing is what makes pricing software different from the rapidly growing software markets. Despite the hype, analytic software disciplines face challenges in scaling as an industry, very similar to the ones facing pricing management software. Like pricing analytics, advanced analytic capabilities are dispersed over many company units and few analysts are part of dedicated analytic teams. This leads to insufficient standardized processes, disorganized knowledge management, and little career advancement for the analysts.

Since business data has already been widely compared as a commodity that is more valuable than oil, it only makes sense for the business world to apply a corresponding effort in managing these assets, in terms of organizational structuring, planning, and accountability.

Better Alignment with the Users of Pricing Management Software

The mantra of ‘getting the right price to the right customer at the right time’ has put sales in the spotlight of pricing. While the sales force is the primary consumer of the results, it is not the primary user of the pricing software. The pricing software market benefits from greater alignment with the primary users of pricing management software: the pricing analysts.

Many pricing analysts are still primarily occupied with reviewing pricing proposals and pricing exceptions, but this only scratches the surface of the potential value that can be delivered from this role. Pricing management software increases efficiency, thus freeing up time. With good pricing management technology, pricing analysts leverage that extra time to handle opportunities to improve the pricing process and benefit from changing market conditions by anticipating them earlier and more effectively than competitors. Consequently, this technology helps to reveal the true value of pricing analysts within their companies.

The Myth of the Inarticulate Quant with the Bad Data

All too often, executives will hear that the “quants [quantitative analysts] can’t communicate” and that there are ongoing issues with bad data. The truth is that most analytic specialists are quite articulate, and that there is hardly any bad data left these days. The mention of bad data is typically an indicator of bad processes, and that is a hard message to accept for those responsible for the processes. Naturally, a business unit is tempted to filter and reposition the results of its analytic experts.

Consider that organized baseball has tracked player and game statistics for more than 150 years. Yet, as the best-selling book and then the hit movie Moneyball capably demonstrated, significant barriers needed to be broken to put the data in the hands of real analysts and only then did the data insights transfer into better management of baseball teams.

Analysts Stuck in IT or Relegated to Independent Business Units is Not the Answer

IT departments are not a great home for analytics, though it’s often the place where we find analytic specialists. Managing the hardware and software of companies is different from managing the processes and skills needed to mine legitimate insights from analytics.

For example, some of the most successful analytic software packages generate even more data than the big data they consume. Data analysts use this ‘analytic dust’ to detect issues with analytic models triggered by market shifts, and then also identify corresponding opportunities. Unfortunately, we often see IT departments throwing this dust out as soon as network performance or disk space are challenged.

Quite often, analysts are also added to business units to help mine the business data relevant to that business unit, but the full value potential of the analysis is actually undermined, since analysts across multiple business units rarely have the opportunity to pool their collective insights.

How to Move Forward?

If business analytics is going to grow and succeed, it needs to be recognized as an independent organizational discipline and be represented by people who can operate on par with the representatives of the business units and the IT department. And for pricing management software to grow beyond its current place, we need not only a VP of Pricing but also a VP of Analytics.

In the event our soft skills don’t achieve that formal organizational change right away, we need the pricing analysts and other analysts within an organization to cooperate and align. Somewhere in the finance department, someone is analyzing risk, while someone else on your inventory planning team is analyzing warehouse capacity utilization, using techniques and technologies like those of pricing analysts and facing similar challenges.

Also, pricing management software providers should shift their focus from the sales force to the pricing analysts. Out with the black box ‘trust us’ models. In with tactical and strategical insights, in addition to the sales insights that have the current focus. With this dedicated effort, pricing analysts and the price management technology market will be gaining real momentum as prominent strategic business resources.