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Last week, Acumen sponsored the Asia Pricing and Commercial Excellence Summit 2018, the leading event for pricing professionals in the region.
The summit focused on achieving commercial excellence through pricing and revenue management strategies. Here are our key takeaways:
Dynamic Pricing
The most common conversation topic over the two days was dynamic pricing – what does it mean, and how can I adopt it in my business? Contrary to the views of some of those at the summit, dynamic pricing is not a time-based measure. Dynamic pricing is the practice of building flexibility into your pricing to reflect market demand and can lead to very different approaches in different sectors. For example, a peer-to-peer ridesharing app might adjust their pricing over a million times a day to reflect consumer demand. A cement business in a hot country on the other hand may adjust their pricing twice a day as concrete cannot be laid during the middle of the day, therefore it is key for the product to arrive in time to coincide with the optimal ‘laying period’.
How would this work in a business to business (B2B) setting though? And are we disadvantaging ourselves if not all parties in the industry adopt dynamic pricing? Take our ridesharing app as an example – when demand rises, and the price increases I will often use a different service where I know there is a fixed price. In this instance I have not maximised revenue, I have only lost share. So if the fixed price exists anywhere in the market, any rational consumer will surely choose to go elsewhere.
From a B2B perspective, the ability to forecast price is also very important. How am I able to forecast my business if all my previously annually agreed costs are now subject to hourly changes in pricing?
The dynamic pricing conversations were abundant, even if conclusions were not.
Market Segmentation
The idea of segmenting your customers appeared in most presentations that were delivered throughout the week. Whether it was FMCG, banking, shipping or insurance, perfecting your customer segmentation to pitch the right offering to the right audience is key. The key principles extolled were:
Not too few, not too many segments – it is important to segment your customers, but it is very easy to become overeager and start segmenting based on what they had for breakfast last Tuesday. Determine some key characteristics, classify clearly, and do not overcomplicate
Equally important in B2B and B2C – segmenting customers in a B2B environment is just as important as segmenting your consumers in B2C. It can be more complex due to the number of actors involved, however B2B customers are typically more rational due to the scale of the purchase. In a pricing and trade terms context you may choose to your segment your customers based on the trade terms you would offer to certain types of customer, for example by channel
Focus on behaviour – segmentation based on geography, language, and size are very straightforward, however in order to gain a competitive advantage we need to segment customers based on behaviour. How sensitive are they to price? Is delivery efficiency a key priority this year? Do they typically provide data? Focusing on behaviour allows us to create segments that will drive value to the business rather than just create an administrative exercise
Change Management
How do you make lasting change from pricing and revenue management initiatives? Dynamic pricing, customer segmentation, advanced analytics, artificial intelligence – all hot topics with some opportunities for great thinking behind them, but all potentially worthless without the right implementation. In order to provide the maximum value, you need to bring people along the journey. We have heard many cautionary tales about projects with the right substance that were ultimately wasted due to poor implementation.
At Acumen, we include change management and/or implementation support with all our product offerings, to make sure that none of the great work done with our clients is lost.