How Pricing Analytics Can Improve Enterprise Profitability - Infosys

VIEW POINTHOW PRICING ANALYTICSCAN IMPROVE ENTERPRISEPROFITABILITYEffective pricing strategies and tactics can deliver a 2 to 7 percentincrease in return on sales.Source: McKinsey Article 2015 on proven pricing strategies and how they work

Executive summaryThe right marketing mix of products,promotions and pricing can driveprofitability for organizations. However,getting pricing right can be tricky since ithas to be intelligently adjusted to fulfill thecustomer’s needs without affecting theorganization’s profits. In reality, pricing isoften the most neglected element of themarketing mix because of which manyorganizations are unable to tap into itsadvantage, resulting in lower margins. Thispaper examines the significance of pricinganalytics as a solution for corporate, retailand investment banking. It also looks atsome of the key solution features neededto increase profitability.IntroductionIn today’s complex and omni-channelbusiness environment, it is imperative forbanks to have granular information abouttheir customers and business drivers suchas who are their most profitable customersor which regions or products are the mostprofitable.The combination of pricing and analyticsprovides banks with a mechanismto highlight such insights, allowingrelationship managers to enhance businessof platforms like BankBazaar.com allowsImprove promotional effectiveness –customers to easily compare prices of thePricing analytics enables the study ofsame product across providers. In manymarket dynamics and customer datacases – better the offer, higher the sales.to predict chances of high profitability.Hence, the pricing strategy of a bank canIt can provide insights into the kind ofplay a critical role in boosting revenue.promotional campaigns that need toPricing analytics uses predictive models tobe launched depending on the marketenable smart decision-making regardingchanges to increase customer transactions.pricing strategies, thereby increasingIt also highlights non-performingprofitability. Here are some ways in whichmarketing campaigns that should bepricing analytics can increase value forbanks:discontinued.value. Pricing analytics can also helpKnow the customer – Pricing analyticsOptimize pricing – Optimization tools forexecutives better understand factors thathelps banking organizations learn aboutthe predictive model gives way to a soundaffect profitability at a granular level.their customers through simple diagnosticpricing strategy. In this way, pricing can betools that visualize customer segmentationoptimized during new product launches,A slight change in pricing can directlyand the drivers of past performance. It alsohelping avert costly mistakes.impact the profit margin.uses customer insights to set an optimal /ideal price and conduct what-if analysesRedefine the pricing strategy – BanksSignificance of pricinganalyticsto see how customers respond to differentoften have to redefine their pricingpricing options.strategy depending on market dynamics,Today’s customers have unrestrictedUnlock pricing opportunities – Pricingrevenue targets, etc. It is critical to getaccess to a plethora of offers from variousanalytics tools can predict extra revenuebuy-in from all internal stakeholderscompanies for any requirement – and theand quick wins while also detecting(operational team, sales team, marketingkey factor for the purchase of any productleakage. This helps banks tap into smallerteam, customer service team) for the newis an attractive price-tag. The emergenceopportunities for faster wins.pricing strategy to be successfulExternal Document 2019 Infosys Limitedproduct suitability, customer choices,

Key considerations for optimal pricingBanks face the following questions when they price their services:InternalExternal1. What is the value of the product to the customer?1. How does the price compare with that of ourcompetitors?2. What is a good discount rate that will not affect the profit2. What is the standard price of this product in the industry?margins?3. What is the best promotional campaign to earn more orders?3. Is the price compliant with the regulatory requirements?4. How can we tailor pricing offers without harming the brand4. How can we use price to optimize sales and increaseshare in specific markets and customer segments?image?5. What is the ROI brought in for the investments made for set ofproducts?Insights from predictive pricing models, when successfully implemented, can improve a company’s pricing and promotionaleffectiveness by 15-20%, increase sales by 1-3% and enhance margins by 2-5%.MARKETING TEAMSALES TEAM Tends to offer prices that willclose the deal through volumediscounts, etc. Knows what the right priceis and what the customerpreference isFINANCE TEAM Knows what the right priceis and what the customerpreference isThe true advantage of any pricing analytics solution is derived when all these 3 factors come together seamlesslyExternal Document 2019 Infosys Limited

How pricing analytics worksA custom pricing intelligence solutionmust consider available pricing models,structure of distribution channels, salesprice data, volumes, cost prices, andAnalysisreferential market prices. Keeping all theseparameters in hand, pricing solution can bederived to replicate the market situationsand derive a suitable price-volume plan fora specific customer. Such pricing strategiesStake holder approvalForm a pricing strategy Analyse market trends Analyse margins, price andvolume ratios Create price volumes fordifferent customer segments Set price for a single purchase Forecast demand based onpast data and intelligencefrom various channelscan also be proposed for a single productor for bundled products in the portfolio foras many prospects as required.Here are the key steps required to build awinning pricing analytics solution: Set price for bundled Get stakeholder approval forthe pricing strategy Establish rebates and discountofferspurchases Get buy-in from internalstakeholdersNegotiate with customers Ensure accurate negotiationbased on the pricing system Arrive at a price that can beoffered without hinderingprofitabiityProvide the final price Offer the final price to thecustomer Update the final price in thesystem Perform next steps like ordergeneration, etc.External Document 2019 Infosys Limited

Real-world example of pricinganalyticsA large Europe-based bank offeringretail, corporate and investment bankingwas looking for ways to discover howdiscounts affected their profitability. Toaddress this issue, historic pricing dataalong with details of past discounts andrebates for specific product segmentswere gathered and analyzed. This wasimportant because, at times, rebates werecustomized for a specific customer basedon their transaction history and existingrelationship. Insights were visualized ona series of dashboards that highlightedhow each of these factors impacted thebank’s profit margins. The solution hashelped analysts gain a high-level viewof pricing data and provided them withcritical information so they can improvehow to bundle and skim discounts forsustained profitability and customersatisfaction. The dashboards also enablethe bank’s relationship managers to betterpredict and improve future profitability.Some examples of these dashboards areprovided below:Dispersion chart showing howdiscounts affect gross profitacross each productProduct-wise discount spreadDispersionchartidentifyingwhether excessdiscounts arebeing offeredto customerswith low salesvolumesCustomer-wise discount spreadExternal Document 2019 Infosys Limited

Benefits of pricing toolsPricing UniformityAcross theorganisationCustomer portfolioAnalysisFact based PricingNormalizing Prices tomarket standardsPricingIntelligenceCustomized offers tocustomer withoutharming the marginsExternal Document 2019 Infosys LimitedReduced RevenueLeakage

ConclusionIn a marketplace driven by price, banksshould leverage the power of data tooptimize pricing so as to retain customers,enhance customer satisfaction andincrease revenue. Pricing analytics is avaluable tool that can help banks unlockthe benefits of pricing potential. Suchsolutions improve pricing offers madeto the customer while providing insightsinto how to bridge the gap between theexisting and what-if prices. It standardizesenterprise-wide pricing, unlocks pricingopportunities, enables informed pricingdecision-making, and uncovers quick winsfor faster RoI and improved marginsExternal Document 2019 Infosys Limited

About the AuthorVeena Shivanna, nce Practice, Financial Services Domain Consulting Group, InfosysPrincipal Consultant with InfosysVeena Shivanna is a Principal Consultant with Infosys. She has over 19 years of IT experience in financialservices, particularly in pricing and billing. She has worked with Oracle products like Oracle RevenueManagement and Billing (ORMB) and Oracle Utilities Customer Care and Billing (CC&B). Veena has been part ofproject delivery and execution across multiple .com/pricing-analytics/Mckinsey Article 2015 - onsproven-pricing-strategies-and-how-they-workFor more information, contact askus@infosys.com 2019 Infosys Limited, Bengaluru, India. All Rights Reserved. Infosys believes the information in this document is accurate as of its publication date; such information is subject to change without notice. Infosysacknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. Except as expressly permitted, neither thisdocumentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without theprior permission of Infosys Limited and/ or any named intellectual property rights holders under this document.Infosys.com NYSE: INFYStay Connected

Insights from predictive pricing models, when successfully implemented, can improve a company's pricing and promotional . Financial Services Domain Consulting Group, Infosys Principal Consultant with Infosys Veena Shivanna is a Principal Consultant with Infosys. She has over 19 years of IT experience in financial