Chapter 5
Advanced Analytics and Price Setting
Definition of a Statistician: A man who believes figures don't lie, but admits that under analysis some of them won't stand up either.
—Evan Esar
More than ever before, companies are gathering, storing, mining, and aggregating data to produce reports distributed throughout organizations in real time. Yet despite this massive information effort, companies still rely on reactive, speculative pricing strategies. Competitive pressures, shifting customer demands, and entrenched organizational cultures may collide, making people fearful of doing anything to disrupt the status quo. Consequently, companies generate few actionable insights from their data and are often reluctant to explore alternative approaches and methods to pricing.
Applied effectively, pricing analytics serve as a powerful tool to improve decision making and increase profitability. But to utilize these analytic methods, a unique, transaction-level view of a company's data is required. This perspective is very different—sharper—than the typical collection of sales information that business leaders find in management reports and financial statements. Unfortunately, the very act of aggregation produces misleading averages and gross metrics, which can mask critical truths about the business. The specific impact of hundreds of thousands of individual negotiations may become obscured in the cumulative totaling of a billion-dollar business. After reviewing several data sets, ...
