Proper control and analysis are indispensable to implement strategic pricing definitions effectively. The article draws a parallel between the evolution of pricing and analytics, outlining thirty-two indicators for monitoring performance and identifying opportunities. Additionally, key challenges and considerations for implementing a pricing monitoring process are highlighted. Marcelo Krybus, CPP, is a Partner Director at Quantiz Pricing Solutions. He has more than 15 years of experience specializing in various sectors such as agriculture, construction, education, and pharmaceuticals. Connect with him on LinkedIn here or reach out via email at quantiz@quantizinternational.com.

The Journal of Professional Pricing, March 2024

Introduction

Peter Drucker, a renowned figure in modern management, said that “what gets measured gets managed” and “what gets measured can be improved.” Control is considered one of the six structural pillars of pricing, alongside strategy, price setting, commercial policy, processes, and systems. Without control, there is no guarantee that the definitions of the first three pillars mentioned above are being executed as planned.

Beyond Control – Continuous Improvement: Pricing analytics extends beyond simply measuring and controlling; it involves continuously improving your pricing strategy based on data-driven insights.

A Case Study: The Importance of Data and Monitoring

Recently, on a B2B project, I faced a situation where the company utilized an advanced pricing model with more than twenty variables to define a target price by customer and product. However, the model required adjustments as planned due to the lack of control over the algorithm’s recommendations compared to the actual prices charged. The algorithm proposed a price below the established minimum for most quotes, violating the minimum margin rule. Consequently, with more than twenty variables, the sophisticated model proved effective for only a fraction of cases (38% of the algorithm’s recommendations), and the company was unaware of this limitation.

This case study highlights the importance of proper tracking to ensure pricing strategies yield the expected outcomes. Furthermore, effective control provides for feedback on defined directions. For example, if the executed strategy produces unexpected effects in price positioning across channels, the company should evaluate the need to adjust the strategy to mitigate resulting friction. Control is indispensable for ensuring the effectiveness and continuous improvement of pricing strategies.

The Development of Pricing and Analytics Maturity

Before deciding which metrics to track, it is crucial to assess the stage of maturity in pricing and analytics within the company. To evaluate pricing maturity, you can use the framework proposed by Paul Hunt, a member of the Professional Pricing Society, which consists of five levels briefly summarized below:

1. AD HOC: There are no established processes or controls at the initial stage, leading to an analogy with a firefighter in the pricing department extinguishing fires.
2. CONTROL: The department establishes processes and controls in the second level.
3. VALUE: With an adequate level of price management, the company continues its journey by entering the stage of capturing value through initiatives such as customer segmentation, more robust commercial policies, and perceived value research, among other initiatives.
4. OPTIMIZE: The company then progresses towards systematically capturing value using Artificial Intelligence (AI) and Big Data tools. At this stage, the pricing team already holds a position in the company’s senior leadership.

1. MASTER: Finally, at the last level, the company demonstrates a solid commitment to pricing, encompassing all aspects of optimization and the systematization of price management. There is a dedicated focus on value capture across all company departments.

To assess the maturity level of analytics, Gartner suggests a four level framework briefly summarized below:

1. DESCRIPTIVE: The first step involves understanding what occurred. Even at this early stage, valuable opportunities that were previously overlooked can be uncovered.
2. DIAGNOSTIC: After evaluating what happened, the next step is comprehending and explaining the reasons for facilitating necessary changes. Cause and effect analyses can be conducted by combining information and statistical analysis.
3. PREDICTIVE: At this stage, analyses shift to a forward-looking perspective. Patterns are identified through data to predict future outcomes. Artificial intelligence algorithms are employed for predictions, contributing to decision-making.
4. PRESCRIPTIVE: In this phase, AI algorithms provide actionable recommendations for achieving favorable results, analogous to how a doctor prescribes medicine to improve a patient’s condition. These recommendations focus on result optimization, considering various constraints and impacts to propose the best action.

The evolution of analysis serves as a fundamental catalyst for the progression of pricing maturity within companies. The diagram below illustrates the interconnected growth between the evolution of the maturity levels in pricing and analytics, highlighting the importance of analytical development in fostering advancement across each pricing and revenue management maturity level.

Assessing Your Company’s Pricing Maturity

With over 15 years of experience in pricing, I can say that reaching advanced levels on the pricing maturity scale, with disruptive advances for stakeholder adoption, is a challenging endeavor. Many companies ask about advanced price optimization solutions (level 4) but may still lack necessary processes, adequate monitoring, or established commercial policies.

Success with advanced pricing solutions hinges on well-implemented and disseminated foundations. Therefore, it is advisable to tread cautiously when addressing pricing matters and to understand your company’s maturity stage clearly. This understanding is crucial for assessing the next step and avoiding potential frustrations resulting from unsuccessful implementations.

This article focuses on the maturity stages of pricing up to the beginning of Stage 4 (Optimize). If you are interested in a deeper exploration of price optimization (Stage 4), Quantiz’s CEO, Frederico Zornig, has written about the topic, accessible at the following link: https://quantizinternational.com/price-optimization-what-is-it/. Additionally, Quantiz partners Tiago Martin and Fábio Vakuda have shared insights on the application of algorithms and artificial intelligence in pricing: https://quantizinternational.com/demystifying-pricing- algorithms-using-artificial-intelligence-and-machine-learning/.

Critical Challenges for Pricing Analytics

Quality Raw Materials: According to William Deming, a productivity expert, “Without data, you are just a person with an opinion,” and “in God we trust; all others must bring data.” Nowadays, Big Data is no longer a new term for companies. We often meet companies with structured databases for real-time access to diverse sales and market information. Data scarcity is becoming less common, but ensuring the data is of decent quality is a must-have. Building advanced analytics with unreliable data is useless. Therefore, confirming the data with internal stakeholders is imperative; otherwise, you risk falling into a “garbage in, garbage out” scenario.

Data Relationships: Many companies face the challenge of combining scattered information from various databases to gain a holistic view of their operation. The effort invested in compiling and integrating diverse data sources is necessary for visualization in a single dashboard, presenting key information such as sales, inventory levels, and budget.

For some companies, the challenge involves condensing internal and external information into a unified database that can be easily accessed in a Data Lake. External sources can include data such as consumer price, market share (from various sources by channel, such as IQVA for the pharmaceutical sector and NIELSEN for traditional retail), and distributor sell-out sales. Integrating sell-out and sell-in information is necessary to obtain a complete view of the value chain and make better decisions. This data integration is even more valuable in highly competitive sectors to gain dynamic insights.

Tools and Skills: To manage the vast amount of information effectively, it is important to have suitable data visualization software, like Business Intelligence (BI) service, for quick data access and easy dashboard development. This will enable pricing teams and other departments to access strategic information and make better-informed decisions.

Given the dynamic nature of pricing, it is recommended that pricing has at least one team member with the skills to build or adjust indicators on the dashboards. This will ensure that they are constantly improved or created, and the team need not rely on other departments.

Statistical Knowledge: While achieving reasonable pricing control is possible without statistical knowledge, quantitative improvement provides more structured and accurate insights. For example, much is said about tracking the average price in pricing, but how is the dispersion? Are the prices close to or far from the average? With the proper statistical knowledge, it is possible to assess price dispersion through graphs (such as the Box Plot) and dispersion measures (such as standard deviation and coefficient of variation) to obtain more accurate conclusions.

Different statistical software, such as R and Python, can help execute analyses, which are free source options but require technical knowledge of programming language. However, these tools can effectively face various statistical challenges and help the pricing team obtain more profound and correct insights, thus enabling more informed decision-making.

Key Pricing and Revenue Management Indicators

In our projects, we leverage a diverse array of indicators. I selected a set of thirty-two and divided them into four groups, each aligned with the stages of analytics evolution. They range from basic to advanced, with the most fundamental in the first group and the most sophisticated in the fourth. The list of indicators and brief descriptions are listed below. For some analysis, it is important to underscore the necessity of conducting statistical tests to ensure accurate and reliable conclusions.

GROUP 1: Basic Monitoring – Descriptive Analysis Level 1

Price Waterfall

A classic and widely recognized indicator in pricing literature, the Price Waterfall assesses factors affecting company profitability. It considers the impact of several factors on the company’s profitability, starting from the gross list price and discounting all the “drains,” such as discounts, taxes, other benefits granted to customers, and variable costs until reaching a margin view. It is essential to consider the detractors evident on the invoice as well as those not present, such as bonuses and rebates. The outcome is the Pocket Price, representing the “clean” and net price of all customers’ benefits. Subtracting the variable costs yields the Pocket Margin, a metric that evaluates profitability and is typically overlooked by companies.

Price Waterfall with Different Profit Drains

Price Dispersion

Price dispersion is an important pricing indicator. Although the average price is significant, its analysis can be biased as it often overlooks the price variation charged among customers. It is noteworthy that having price dispersion is not necessarily bad for pricing; however, lacking control or a logical explanation raises a red flag.

The Box Plot is commonly employed for this analysis as it provides visualization of price dispersion among customers, evaluates quartiles, and identifies outliers. It aids in assessing dispersion in various dimensions, for example:

Channels: Evaluate unintentional customer invasions that may harm price execution in the distribution chain, such as cannibalization between distributors and retailers.

Regions: Analyze regional price differences (states, territories, etc.). Segments: Measure price differentiation intended by customer segmentation.

When analyzing price dispersion, applying filters to avoid the MIX effect, which can distort the results, is necessary. For example, to study price differentiation between channels, it is recommended to filter a product (SKU) in a specific region for a more accurate view and to draw appropriate conclusions.

Maintaining control over price dispersion is essential for effectively executing the pricing strategy.

Evolution of Discounts Offered

Analysis of the evolution of discounts offered is crucial for pricing management. Understand the historical percentage of discounts applied over time and, ideally, have a more detailed view of the discount curve. Several factors, such as sales channels, customer segmentation, and pricing policy rules, should segment this curve. This way, it is possible to identify trends and patterns in discounts granted, helping assess their alignment with the company’s pricing strategies. A detailed analysis of discounts also reveals opportunities for improvement in pricing management, shedding light on potential limitations or deviations in the commercial policy.

Adherence to Commercial Policy

Ensuring adherence to the current commercial policy determines if the company holds fast to the set guidelines. It is assessed by measuring the proportion of negotiations that comply with the established commercial policy guidelines concerning the number of negotiations conducted. Some companies provide off-invoice allowances or bonuses for various purposes in addition to the discounts applied on invoices. It is also essential to evaluate whether these allowances follow established regulations.

Quantiz uses the following reference as the basis for evaluating the exceptions:

Exceptions: Number of Negotiations by Approval Level

This KPI evaluates the number of negotiations submitted to each approval level. Verify if the highest level of approval (Board of Directors/Presidency) handles excessive requests. In some instances, projects revealed that the final approval instance was merely used to formalize the request without critical analysis. Ideally, a few price requests would be escalated to higher levels.

Negotiation Amount per Approval Authority

Adherence with the Rules Defined by the Levers (discounts) of the Commercial Policy

This measurement is relevant for finding if the established parameters of the commercial policy are appropriately distributed. For example, by analyzing the volume/revenue lever, it is possible to identify a high concentration of customers in specific ranges or the absence of customers in others. This indicator aims to calibrate the parameters established for each lever of the commercial policy (e.g., volume/revenue, mix, regularity, etc.).

Clients Distribution Across Revenue Bands Within Each Segment

Adherence to Minimum Prices

Executing the minimum price policy demands a thorough examination of its practical application. It is necessary to verify how this rule is implemented, considering factors such as region, channel, segment, etc.

Sales with Discounts Lower than Allowed by the Policy

Is the sales team using the maximum discount enabled by the commercial policy, or can they capture more value in negotiations? This indicator may signal the need for changes in the price table or a commercial policy review, as specific negotiations might not capture their total potential value. For instance, if a veteran sales rep historically charged prices above those allowed by the policy, a recent sales rep in the same channel and territory might adhere strictly to the policy’s allowable discounts, potentially leaving money on the table.

Furthermore, tracking and analyzing the performance of sales team members who excel in maximizing value in negotiations is advisable. Replicating their best practices among fellow salespeople can enhance overall negotiation effectiveness and contribute to better value capture for the company.

Market Share Evolution

Analyzing the evolution of market share following price movements can help assess the impact of price changes on the company’s sales. This analysis can aid in deciding on future pricing actions.

 

Price Effect without Mix Effect

The analysis of Price / Volume / Mix effects (PVM) is often discussed within companies, and numerous articles approach this analysis differently. The price effect can be an indicator to reach practical conclusions about price variation over time.

Conducting a price analysis without the mix effect is recommended to assess practiced price evolution accurately. In the example below, it is possible to observe the difference in conclusions obtained when evaluating the average price variation – tending to growth – versus the price effect – tending to stability.

Average Price and Price Effect Over Time

To calculate the price effect, follow these steps by comparing two periods (Final and Initial):

• Calculate the initial revenue by multiplying the price by the volume in the initial period, considering only the customer and product present in both periods.
• Determine the final revenue by multiplying the final period’s price by the Initial period’s volume, also considering only the customer and product key present in both periods.
• Divide the sum of the final revenue by the initial revenue and subtract one to obtain the price variation without considering the mixed effect of customers and products.

Inflation Tracking

When tracking inflation, do you rely solely on the general inflation index or delve into specific categories within your company’s sector? Inflation indices reflect a range of goods and services, showing the average price increase or decrease for those categories. For example, the overall inflation index may decline (deflation), but concurrently, during the same period, the price of gasoline might decrease while the price of milk rises. Therefore, adopting a more detailed view of the inflation index is paramount.

Example of Price Variations Across Different Categories

Contribution Margin (Absolute and %)

How is the company’s contribution margin evolving? This metric is fundamental for determining whether pricing actions bring value to the company. For example, price reductions can positively affect the company if they generate enough volume to increase the absolute contribution margin, even if they reduce the percentage margin. Analyzing customers and/or products is helpful to unveil potential deviations. Make sure to track the absolute and percentage contribution margin evolution, as both are significant for assessing the company’s financial health.

GROUP 2: Expanding Insights – Descriptive Analysis Level 2

Price Index

The assessment of the price positioning in relation to main competitors is referred to as the Price Index. Usually, the leading market player is used as base 100 for evaluating the relative position with other market players. Some companies use the average market price as a reference for the base 100. There is no right or wrong approach; they are simply different references.

However, avoid making hasty decisions to avoid a price war. We recommend having a historical series to assess the evolution of price positioning, as sporadic events may influence a single snapshot.

Price Index and Market Share per Brand 

 

Price Index Evolution

Pricing Piano

The Pricing Piano is a visualization depicting the quantity of products in different price ranges for various market players. This mapping technique allows for analyzing the distribution of products in different price ranges and assessing the positioning of products compared to the competition. Each key represents a specific price, and combining all the keys forms a “piano” that shows the complete range of prices for products in the market. One goal of this analysis is to identify pricing white spaces—areas where there is a lack of competition.

Pricing Piano Example for the Pet Food Market

Margin in the Value Chain

This indicator measures the margin or markup practiced at each stage of the distribution chain. It allows the implementation of an ‘outside-in’ pricing strategy, where the customer price positioning is defined first. Then, the margins/markups of the intermediaries are evaluated to

establish the sell-in price. For pricing from “outside (sell-out) to inside (sell-in),” it is vital to have the reading of this indicator.

Identified Markups in the Value Chain

 

Markup Levels by Region

Adherence to the Planned Price Adjustment

This is an evaluation of the actual adjustment compared to the target price adjustment established by the company. The analysis helps identify deviations in execution and offers valuable insights for refining future price adjustments.

Breakeven or Equilibrium Volume

This analysis is a tool for simulating different price scenarios, enabling the assessment of the incremental volume required to maintain the absolute contribution margin stability in case of price reductions or the potential loss of volume to keep the absolute contribution margin stable in case of price increases.

The simplified formula for calculating the breakeven point is:

The following table shows the volume required to reach the breakeven point for different price variations (both positive and negative) and percentage contribution margins. This table aids decision-making regarding prices and associated volumes required to achieve contribution margin equilibrium.

For example, consider a scenario where a company intends to run a promotion with a 35% price reduction for a product with a 30% contribution margin. The volume would need to increase by 500% or six times to maintain the same contribution margin level. This highlights the considerable challenge of executing this promotion while sustaining the desired contribution margin.

Conversion Rate: Quotes Won vs. Quotes Lost

Have you evaluated the conversion rate level of quotes won in relation to the total quotes made? Examining variations in conversion rates among distinct categories, segments, channels, and territories can provide valuable insights and indicate opportunities to adjust prices—either upward or downward.

A more comprehensive analysis, known as Win/Loss, involves digging into historical data to develop pricing optimization models. This in-depth approach contributes to enhancing the effectiveness of your pricing strategies and gaining a deeper understanding of the factors influencing quote conversion rates.

Concentration of Conversion Rate for Distinct Categories

New Customers vs. Customer Churn

To assess the impact of price movements on the customer base, it is necessary to monitor both the acquisition of new customers and the churn of existing ones. An increasing number of new customers may show an effective pricing strategy, while customer churn could highlight potential issues such as prices being too high or unsuitable for specific segments. Regular assessment of this indicator is essential for adjusting the pricing strategy and maintaining a healthy and expanding customer base.

Occupancy Rate

This indicator allows for evaluating available capacity in relation to year-to-date and projected sales. It provides insights into opportunities for price adjustments, both to increase demand in periods of low occupancy and to maximize revenue in periods of high occupancy.

Stock Level

Monitoring the stock level of finished products can reveal potential pricing opportunities. A low stock level may signify a chance for greater value capture, while a high stock level could require inventory reduction through strategic price adjustments. Regular assessment of stock levels provides insights into maintaining a balanced inventory and optimizing pricing strategies for improved overall performance.

Frequency of Company and Market Promotions

Evaluate the frequency of promotional actions the company and its main competitors execute over time. This analysis unveils the competitive promotional strategy, which could be used to plan new promotions.

Promotional Levels Over Time

Average Current Cost vs. Replacement Cost

The relationship between the current average cost and replacement cost can be a relevant indicator for guiding market price repositioning, particularly within specific segments. For instance, if the replacement cost of a product significantly exceeds the average inventory cost, the supplier may signal a market-wide price increase, prompting the company to review its prices.

MTI (Margin Turn Index)

The Margin Turn Index (MTI) is an indicator that evaluates the impact of the financial cost of inventory on the contribution margin. In our projects, we have faced situations where products with low turnover showed high apparent profitability. However, the actual profitability could undergo significant changes when considering the opportunity cost of inventory.

Example Illustrating the Difference Between the Contribution Margin and MTI

GROUP 3: Focus on Diagnoses Analysis

CLTV (Customer Lifetime Value)

It is an indicator that represents the average financial value a customer can generate for a company throughout the entire duration of their business relationship. CLTV estimates the total margin a customer might contribute to a company’s profitability over their lifetime, encompassing repeat purchases and potential upgrades (up-sell or cross-sell). This indicator holds significance for businesses with recurring revenue models, such as subscription services. Armed with knowledge about CLTV, companies can formulate effective pricing strategies and tailor their approach for different customer profiles.

CLTV can be calculated as follows:

Value Map

The Value Map is a customer-oriented indicator that assesses whether a company’s pricing aligns with customers’ perceived value. It is based on cross-information about perceived value and the prices charged by market players.

The expected trend is positive – the higher the customer’s perceived value, the higher the price charged. In some of our projects, we identified opportunities for repositioning when

competitors charge less than the perceived value by customers, indicating they are below the Value Equivalence Zone.

The Value Map serves as a tool to discover pricing opportunities and repositioning, ensuring that prices align with the perceived value by the customer with a focus on customer-centricity (as advocated by Jeff Bezos, founder of Amazon).

Example of Value Map in the University Market

Promotional Effects Analysis

Understanding the impact or return on investment of price discounts is pivotal. This indicator evaluates various effects of promotional actions, including incremental sales, reduced prices, increased variable costs, the impact of experimentation on future sales, consumer inventory levels, cannibalization effect with another product in the portfolio, and the cost of advertising. If you want to explore this topic further, please consult our previous article here: https://quantizinternational.com/questions-sales-promotion/.

Example of a Comprehensive Outcome from a Price Promotion Execution

Price Based on What?

The goal of this indicator is to assess whether certain variables can justify the dispersion of prices charged. To conduct this analysis, it is recommended to use multiple linear regression to identify significant variables and determine how they can explain the variation in prices observed.

For example, if the R² is high for significant variables, such as volume, mix, and purchase frequency, it can be concluded that these three variables explain the price variation. This analysis can include both categorical and numerical variables. Tracking this indicator helps evaluate whether the defined strategies are being implemented as intended.

Another valuable insight from the analysis is the extent of influence the analyzed variables have on price dispersion. For instance, a common expectation is that customers with higher volume would experience lower prices. In this scenario, the analysis may reveal a negative coefficient for volume, showing that higher volume is associated with lower prices.

Example of Price Based on What Analysis Within Business Units

Main Offender

This analysis focuses on the market’s competitive dynamics, pinpointing players with the highest historical cannibalization. This insight is significant for quantitatively finding the primary competitors by location and channel. This analysis’s output may require qualitative confirmation from other departments, such as marketing and sales.

Market Share Evolution for 2 Brands with Cannibalization

 

Market Share Correlation Matrix Between Competitors

 

GROUP 4: Engine for Optimization – Predictive Analysis

Price Elasticity

To accurately assess pricing strategies for products, regions, channels, and segments, it is important to understand how price sensitivity plays a role. For example, if a product has historically shown a slight fluctuation in sales volume despite price reductions, it is considered inelastic. In such cases, future price reductions or promotions should not include this product. Conversely, suppose a price increase for a product substantially affects sales volume. In that case, it serves as a warning sign for exercising caution when implementing price hikes to prevent a substantial decline in sales.

It is noteworthy that price elasticity measures the impact of the company’s price and volume changes without considering competitors’ prices, which will be in the following indicator.

Understanding price elasticity is vital for developing pricing strategies considering customer price sensitivity and aiming to achieve desired company outcomes such as market share, revenue generation, and contribution margin.

Volume X Price Over Time

Quantity

Price

 

Using Elasticity to Establish the Optimal Positioning

Cross-Price Elasticity

This index assesses how competitor price movements affect the company’s sales volume and vice versa. It provides valuable insights for simulating price changes in the market and predicting their impact on volume, market share, revenue, and contribution margin.

A derived analysis of cross-elasticity includes the Punch (ability to capture market share) and Vulnerability (likelihood of losing market share) indicators for each company compared to its competitors. This provides a map to identify which market players have the most significant potential to gain or lose market share due to price changes.

For example, if a company has a low punch compared to its main competitors, price reductions should be avoided, as it lacks the “strength” to gain market share. Instead, exploring other strategies, such as improving product quality or enhancing services to increase market share, may prove more effective.

Shopping Basket

Market basket analysis evaluates customer buying patterns by examining associations between categories or items in their sales. This analysis enables the identification of opportunities for products that could be bundled together for sale but currently are not. For instance, the pricing department could suggest a product combination to promote the sale of these items together

at an appealing price. Another outcome is the suggestion of promotions for categories/items strongly associated with other categories/items. In the example below, sugar is a category that should be promoted due to its high association with seven distinct categories. This suggests that attracting a customer to buy sugar may also lead to purchasing the associated categories.

Network Graph to Visualize Associations Between Categories

Key Considerations to Keep in Mind

Cultivate a Data-Driven Culture: To increase the likelihood of success in tracking price execution, the company must cultivate a data-driven culture. This ensures stakeholders have confidence in the analyses and empowers them to apply insights effectively, leading to improved business outcomes.

Define Measurement Objectives: Before selecting indicators for tracking, clearly understand what you intend to measure. For example, for a company that has recently implemented a new commercial policy, it is important to choose indicators to assess compliance with the new policy. If the company is beginning its pricing journey, it is advisable to focus on specific indicators from groups 1 and 2 to gain insights and enhance its maturity. Otherwise, having too many indicators may make it difficult for the company to act on all identified opportunities or even become overwhelmed by the many indicators.

Establish Goals: After defining the KPIs, it is necessary to establish short, medium, and long- term goals aligned with the company’s strategy.

Industry-Specific Considerations: Some industries may have specific criteria for incorporating indicators into their price management dashboards. For example, a notable performance metric known as PRASK is used in civil aviation. PRASK is calculated by dividing the passenger revenue by the number of seats and multiplying the outcome by the total available seat kilometers. This metric is valuable for airlines to assess economic performance in relation to available capacity.

The Granularity of Evaluation: Indicators can be evaluated at distinct levels of granularity, from a macro level, considering all products and customers, to the lowest level by customer and product. However, it may be impractical to analyze every possibility depending on the company’s number of customers and products. In such cases, we suggest focusing on the leading products, creating visuals highlighting the key points for each level of granularity to be evaluated, or incorporating base 100 indices to help with comparison. The chosen approach should align with the company’s context and pricing monitoring objectives.

Potential Conflicts: KPIs can show conflicting directions of price movement. For example, a product in a specific region may exhibit a significant level of inelasticity while also showing a decrease in the conversion rate, which has decreased in recent months. In this scenario, the level of elasticity suggests that a price reduction would not substantially affect sales, i.e., it would not significantly increase the conversion rate. Therefore, pricing decisions should consider a broader context, evaluating multiple indicators to make more informed and effective decisions.

Final Considerations

Conducting a self-assessment to determine the company’s current level in the pricing and analytics journey is recommended as a first step. For companies in the initial stages, it is suggested to begin tracking using a select set of key indicators, enabling pricing decisions based on concrete facts and data. For those companies already at a certain level of maturity, it is advisable to enhance pricing management by incorporating more advanced indicators to capture more value.

Despite the maturity stage, a committee should collaboratively make pricing decisions. In this committee, representatives from departments interested in pricing should collectively evaluate opportunities for price movements through the dashboard with established KPIs. The committee leader (pricing) should prepare for these meetings by meticulously studying the indicators, providing insights to participants, and helping in decision-making.

The primary objective of exercising greater control over prices is to help with feedback on the defined strategies and identify opportunities for improvement. Understanding what succeeded or faltered in pricing actions contributes to more informed decision-making and improves strategies. Implementing a pricing monitoring system and performance indicators can significantly benefit the company. Therefore, companies must invest adequate resources and establish processes for effective pricing management, staying aware of changes in the business environment.

I would like to express gratitude to the consultants at Quantiz, including Lorrane Fattobene, Marco Yashiro, and Wellington Kadooka, for their contributions to the development of some visuals presented in this article.