Pricing, AI and Big Data Optimization
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This document discusses pricing strategies and how artificial intelligence and big data can be leveraged for pricing. It provides several key points: 1) Pricing is the biggest profit driver for companies and small changes can yield large results, as shown in a case study where a 5% price increase led to a 50% rise in profits. 2) Digital initiatives focused on pricing can provide big benefits by gaining insights from customer data on their price sensitivities and willingness to pay. 3) AI can help with personalized pricing by segmenting customers based on their characteristics and behavior, but companies need significant customer data and testing to implement it effectively.
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Pricing, AI and Big Data Optimization
- 1. Pricing, AI and Big Data
- 2. Hello! I AM BYRON POWELL Commercial Marketer and Data Lover. You can find me at byron@bkpowell.com 2
- 3. “ The single most important decision in evaluating a business is pricing power Warren Buffet 2011 3
- 4. PRICING IS THE BIGGEST PROFIT DRIVER Price $100 Sales 100k Variable Costs $60 Fixed Costs $3m 4 Case Study - Blunt Umbrellas
- 5. PRICING IS THE BIGGEST PROFIT DRIVER Profit Driver Old New Price $100 $105 Sales 100k 105k Variable Costs $60 $57 Fixed Costs $3m $2.85m 5 Profit Old New $1m $1.5m $1m $1.2m $1m $1.3m $1m $1.15m 50% 20% 30% 15% +5%
- 6. FOCUSING DIGITAL INITIATIVES ON PRICING CAN YEILD BIG RESULTS 6 Source: Simon-Kutcher Global Pricing & Sales Survey
- 7. Pricing Strategy The why of pricing 1 7
- 8. “ Pricing is actually a pretty simple and straight forward thing. Customers will not pay literally a penny more than the true value of the product. Ron Johnson, the former chief executive officer of J. C. Penney 8
- 9. PRICE IS WHAT CUSTOMERS PAY, VALUE IS WHAT THEY GET 9
- 10. PRICE IS WHAT CUSTOMERS PAY, VALUE IS WHAT THEY GET 10 JodieHamish Justin $4$2 $5 Lost Profit Lost Sales
- 11. PRICE IS WHAT CUSTOMERS PAY, VALUE IS WHAT THEY GET 11 x Hamish Justin $4$2 $5 # $ Jodie z y
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- 17. BEHAVIORAL ECONOMICS ALSO HAVE A BIG IMPACT Relative Prices 17 $20 $30 80% 20% $20 $30 $50 40% 50% 10% Source: Simon-Kutcher & Partners
- 18. BEHAVIORAL ECONOMICS ALSO HAVE A BIG IMPACT Placement 18 Basic Regular Premium Premium Regular Basic 37% 45% 18%33% 43% 24% Source: Simon-Kutcher & Partners
- 19. PRICING IN THE DIGITAL WORLD How this hinders and can help achieve segmented pricing 2 19
- 20. PRICES ARE MORE TRANSPARENT THAN EVER 20
- 22. VALUE IS MORE TRANSPARENT THAN EVER 22
- 23. SEGMENTING PRICING IS BECOMING EASIER 23
- 24. IT’S EASIER TO TEST AND LEARN NEW PRICES 24
- 25. WE KNOW MORE ABOUT CUSTOMERS 25
- 27. PERSONALISED PRICING AND AI How can IA help and what are the hurdles to implementation 3 27
- 28. KEY SUCCESS FACTORS IN USING AI IN PRICING Data Lots of data. Multiple sources. Closed loop data Stable Products Enough historical sales for the machine to learn Clear Goals Clear and consistent measure of success Mechanism to get offer to customer Mechanism of getting the offer to the customer needs to match the granularity of the data The right resourcing Allocate the dedicated time or resources to get it set up Human Oversight over offer Some prices may not make sense 28
- 29. THE USE CASE FOR AI IN PRICING The use case for AI in pricing is better segmentation. The two biggest hurdles are finding a segmentation that is accepted by customers and growing the baby to a teenager 29
- 30. Thanks! ANY QUESTIONS? You can find me at byron@bkpowell.com 30