One of the key jobs in any organisation is setting prices at an appropriate level.
Pricing needs to be set at a level which maximises revenue and profit but which does not deter too many customers.
The task of setting appropriate pricing often comes with additional constraints (E.g. competitor pricing, supply limits, etc) that need to be incorporated.
One of the most common requests we receive at Intellify is to assist customers with pricing, particularly with finding analytical ways to determine an appropriate price, instead of falling back on gut-feel. The best pricing strategy can drive predictable revenue and increased profits.
In the past, we’ve helped companies in tourism, utilities, real estate, as well as retail organisations set the most appropriate pricing for their product. Generally, we’ll approach the engagement in a series of 3 steps:
- First, we collect historical data and ensure it is appropriate. We then examine the data for the following questions:
a) Is there enough variation in price to “show” the models what happens when the price is varied?
b) Is there sufficient competitor pricing data?
c) Do we have enough detail on other data? Like the weather, special events, etc.
- After this we will look at starting the Demand-Price modelling – we generally start with some straight-forward demand-price curves and quickly move to enhance these with additional data, and modelling of constraints etc. In this step, we will generally be using a combination of advanced machine learning algorithms and also some traditional statistical techniques.
3. Once we understand the relationship between demand and price, and with the other features in the data, we can start to look at optimising the total revenue you can expect to receive, using advanced mathematical optimisation techniques.
Of course, you might ask “What if I don’t have my data ready?”. For instance:- it is not uncommon for an organisation to not have sufficient variation in historical prices to allow the work to progress.
In this case, we would generally look at the data that is available, and recommend some specific pricing experiments – these will be recommendations of particular prices in the conditions replicating a controlled experiment as closely as possible to provide sufficient data for the full demand modelling piece.
As we head into 2021 off the back of quite a turbulent year, it’s imperative now more than ever to focus on the correct price for the highest return for your product/service in your organisation. If you are interested in talking more with us about the challenges you are having with your pricing techniques, and aim to let the data speak for itself, then contact us today at email@example.com and a consultant will get back to you as soon as possible.