Where would you turn?
Strategy & Operations > Pricing and Profitability Optimization
Pricing and Profitability Optimization
If you want to stop relying on gut feelings or rules of thumb, our Pricing and Profitability Optimization techniques will transform your data into valuable insights that can increase both the top and bottom line.
Economists, statisticians, programmers, and strategy experts at Advanced Analytical Consulting Group have helped clients spanning various industries to enhance their pricing and profitability management capability, which has led to identified profits worth over $500 million. We have developed and deployed econometric models for quality control, performance measurement, and profit maximization at major corporations in the US and internationally.
THE POWER OF PRICING
To improve profitability, business leaders have traditionally focused most of their attention on reducing costs. Reducing costs will improve profitability, but this approach often ignores a more potent path to higher profits — price. For the typical S&P 1500 company, a 1% improvement in price can deliver almost 10% improvement in operating margin.
OUR APPROACH
PRICING OPTIMIZATION ENGINE
An important feature of our approach is a sophisticated price optimization engine that draws on decades of research and experience, but is heavily customized to the client's business model and go-to-market strategy. The engine is powered by multiple analytical and statistical models that compete against each other to determine which model most accurately reflects the way customers react to price changes. This engine is then used to generate various revenue and profit scenarios. Clients choose, and implement, an optimal pricing scheme that is aligned with their long-term and short-term business objectives.
The price optimization engine and the underlying models are designed to receive data feeds as often as possible – multiple times per year, weekly, daily, or even hourly. Using this information, the engine evolves over time to determine how you can further optimize prices, promotion, and advertising to maximize profits as customer and competitive behavior changes.
3-STEP PROCESS TO INCREASE PROFITABILITY THROUGH PRICING
AACG has assisted numerous clients advance their pricing effectiveness and profitability by deploying a 3-step process.
Step I: Measure. What cannot be measured cannot be improved.
The first step focuses on giving owners a very thorough understanding of how and where money is made and spent in the business. The key aspect of this step is the level of detail at which we measure. By understanding the revenues, associated costs, and resulting profit for each transaction, we can aggregate information to provide many, powerful views of business activities and health. Income statements are, after all, an aggregation of line items on the invoice. To obtain this level of understanding requires ready access to clean, historical, invoice level, line item data.
Step II: Improve. Quick and immediate opportunities to increase profits.
In this two-phase step, phase one focuses on analyzing the wealth of information created during the measurement step and identifying opportunities that could immediately improve the bottom line. These opportunities surface when there is a disconnect between the margin and the associated costs for a set of transactions. Savings identified typically equal 2% to 3% of revenue and cover the entire value chain -- sales, marketing, supply chain, discounting, finance, shipping, and purchasing, among others.
Phase two focuses on determining the right price to charge each customer for each order by developing and utilizing AACG's models. AACG's models help managers understand customers' willingness to absorb higher prices, to use promotions and loyalty initiatives to alter demand behavior, and eventually to determine optimal pricing and incentives for every customer and every transaction. This fact-based, scientific approach can stem and reverse margin losses and, in some cases, enable price increases.
Step III: Sustain. Implement a quick, repeatable process with company-wide buy-in.
Determining optimal prices is the analytically challenging, critical first step. Passing on these prices to customers requires enterprise-wide buy-in, especially from the field sales force. A repeatable, technology-driven solution with appropriate discounting approval processes, price floors, and timely reporting will ensure that anticipated revenue and profits make their way to the income statement without dilution.
ILLUSTRATION: TYPICAL PRICING ANALYSES OUTPUT
Pricing and Profitability Optimization provides managers with fact-based decision-making capabilities. Two of the most commonly used analyses are illustrated below:
The Profitability Waterfall measures and displays business practices that erode margin . Waterfalls can be created for each customer, product, supplier, region down to the transaction level.
The Price Elasticity analysis visualizes the cross-elasticity dependencies that exist between various dimensions in your business such as products, brands, and regions.
 |  |
| Profitability Waterfall | Price Elasticity |
|---|---|
| click to enlarge | click to enlarge |
To learn more, contact our pricing team using the links to the right, or email us at info@AACG.com.
Contact Our Pricing Team
Daniel S. Levy, PhD
National Managing Director
617 901 6344
Profile
|
E-mail
Stephen Nyquist, MS
Principal
313 657 5862
Profile
|
CV
|
E-mail
Karthik Padmanabhan,
MBA, MS
Senior Manager
619 757 0700
Profile
|
CV
|
E-mail
Related Content
Press Release: Stephen Nyquist joins AACG as Principal Press Release: Karthik Padmanabhan joins AACG as Senior Manager