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Pricing Analytics: What Is It, and Why Is It Important?

Vendavo< Vendavo June 21, 2021

Pricing analytics is fast becoming essential to a company’s overall growth strategy. By helping businesses understand how their prices affect profitability and what they can do to optimize their pricing structures, pricing analytics offers enormous potential to help companies grow.

Using a wide range of different metrics, along with cutting-edge analytical software, companies can now use pricing analytics to get ahead of their competitors. Here’s a brief overview we hope helps the reader learn more about the nature of pricing analytics and how to put its tools to work

What Is Pricing Analytics?

The term pricing analytics is used to describe the range of metrics and software used to understand and explain how pricing affects a business. This analytical software is often used to help companies gain a more thorough understanding of how profitability differs for a range of different pricing options and how far pricing optimization could improve the potential profitability of products and services. 

Using pricing analytics, companies can gain a more thorough understanding of price optimization. This improved knowledge can then be used to ensure that all prices are fully optimized and that the business is performing as well as it possibly can. 

Types of Pricing Analytics

There are three main types of pricing analytics that companies need to be aware of. Here are some capsule descriptions:

Descriptive

Descriptive pricing analytics involves the use of historical data, which can be analyzed to evaluate how changes have been perceived in the past, and how customers have reacted to pricing fluctuations before. 

Typically, descriptive pricing analytics involves the analysis of metrics such as month-on-month sales growth, year-on-year pricing changes, average revenue per customer, or changes to the number of sign-ups to a particular service over a particular period of time. All of these metrics can be used to give a business a complete picture. 

Predictive

No business can predict the future with perfect accuracy, but predictive pricing analytics gives companies the best possible chance of doing so. This form of analytics involves the use of historical data, which is analyzed and then used to make informed predictions on what might happen in the future.

Predictive pricing analytics incorporates statistical algorithms and machine learning to ensure the best possible results for a company. Once these metrics have been gathered and analyzed, businesses can begin to optimize their prices with future goals in mind. 

Prescriptive 

Prescriptive pricing analytics can be seen as the opposite of descriptive analytics. While descriptive analytics enables companies to explore their data to understand why customers have reacted the way they have after an event, prescriptive analytics is used to help companies create better, more informed strategies before they do so. 

Companies evaluate prescriptive analytics metrics in order to shape their growth strategies, with the aim of achieving better, more sustainable results over the long term.

Why Is Pricing Analytics Important?

Pricing analytics are of increasing importance to today’s businesses. And as more and more companies begin to recognize the power of pricing analytics, it’s likely that it’ll quickly become a key part of decision-making processes. 

Today’s companies are highly complex, selling a wide range of products and services, along with product bundles and subscriptions, at a multitude of different price points. And that means that pricing analytics is vital if a company is to offer consistently optimized prices to all of its customers.

When it comes to improving profitability, few drivers are as successful as pricing optimization. Research has shown that price management initiatives can increase a company’s margins by 2-7% in 12 months, yielding an ROI of between 200-350%. But for companies to unlock these huge gains in profitability, they need to be able to access a complete set of pricing analytics data, and understand how to analyse this information. Far too many companies overlook this golden opportunity to improve profitability, instead relying on guesswork. But this needs to change. 

How Can Pricing Analytics Unlock Profitability?

Pricing analytics can be used to unlock profitability and help companies achieve rapid growth. Here are just a few key benefits of pricing analytics. 

Better Customer Insights 

If a company is analyzing the metrics it needs to understand pricing optimization, it will also be gathering hugely valuable insights on its customers. When used correctly, this data can then be used to reach further revenue improvements, through the use of smart analytical decisions such as customer segmentation. 

Fully Optimized Pricing

Pricing analytics means discovering the optimal pricing for a given product or service, and eliminating any guesswork from these important decisions. Using analytical software, companies can learn all there is to know about how their pricing decisions impact profitability, and create winning strategies based on this data. 

Identify New Opportunities 

Whether a company needs to shift stock quickly, or opportunities to upsell are being missed, pricing analytics can help. With pricing analytics, companies can identify numerous new opportunities and attract new customers through clever pricing decisions. There’s no better way to grab that low-hanging fruit. 

Learn Where to Invest in the Future

Analytics reveals which eCommerce channels are the most profitable, and where money is best spent in the future. All leads can be fully analyzed, understood, and companies can identify which channels they should be investing the most in, as part of their future customer acquisition strategies.  

Using Pricing Analytics to Your Advantage

Pricing analytics is a powerful tool. When used effectively, it can make a huge difference to the potential of a company, helping a business unlock incredible profitability in a relatively short space of time. But there are a few considerations to bear in mind if a company wants to ensure it’s using analytics to full advantage. 

For pricing analytics to work effectively, it needs to be based on a wide range of data. So, all key metrics must be tracked and analyzed before its techniques can make an impact. Companies should be tracking key metrics such as deal life cycles, along with pricing performance metrics including average revenue per user and margins on products and services. 

Data gathered via pricing analytics software is hugely valuable, but only when it’s used to inform decisions and determine future strategies. It’s not just a case of gathering the information. Companies also need to focus on how best to use that information to reap all the rewards that pricing analytics holds. 

If you’re interested in finding out more about pricing analytics, or you’re looking to move beyond manual processes and increase profitability for your company, we’re here to help. Vendavo offers a range of solutions designed to help you analyze large data sets, identify new opportunities, and collaborate effectively. Get in touch to find out more. 


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