The Importance of Business Analysis In Price Strategy Development 👨🔬
Every business leader understands the importance of business analysis when making decisions. However, the majority of businesses (leaders, managers and staff) don’t ask enough or the right questions or don’t have the skills to understand the business and its challenges. What’s more, many managers struggle to identify the real problem at hand and cannot articulate a reasonable response to issues and challenges they see before them. The end result: a strategy report derived from insufficient business analysis and poorly developed solution delivery and/or conclusions.
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Like most things, doing business analysis properly is not easy. Especially when the task is to analyse a complex business model and situation.
Take, for instance, strategic pricing and price rise management. Many business managers don’t have the required depth of experience or expertise in this area as they often come from a pure finance or operations background. For, example, we see managers procrastinating over the results of a price rise when all the data indicates that the price rise programme is clearly a failure (i.e., a pass-through rate of <20%).
Admittedly, it might be difficult to decide whether a price rise is a clear failure when there’s no tracking to verify otherwise (which is often the case when businesses decide to raise prices). Yet, despite these flaws in experimental design and measurement, armed with the right knowledge, we also see managers and their organisations going on to improve price rise outcomes by learning from experimentation and after price rise response and tracking.
In this article, we look at the importance of business analysis in your company. In particular, we examine some of the deciding variables for effective business analysis.
We argue that business analysis requires detailed data management, analysis, experimentation, and ongoing process improvement and tracking (structural and decision making).
At Taylor Wells, we believe that what you discover from experiments; and how you apply these learnings, the insightful opportunities, and most significantly, the discussions you have with peers about your findings, should all impact corporate decision making. By the end of this article, you will discover how to embed business analysis capabilities in your business to generate productivity and profitability.
The Importance of Business Analysis: Building a Value System in your Price Strategy Development
Companies do not always have an accurate understanding of the business environment. Experimenting helps them capture more factual data about pricing conditions. They may, for example, assess how buyers react when a manufacturer raised its prices on certain products. It allows them to foresee outcomes that will support their decision-making process. But while business analysis fosters innovation, it can also be time and resource-intensive.
Some conditions should be met before conducting experiments. These include the crucial elements that must be recognised when testing in a dynamic business environment, which data to analyse and the standards upon which judgments must be based. But before we delve into that, what exactly is the importance of business analysis?
The Importance of Business Analysis
We believe that, despite the difficulties and costs associated with conducting experiments, business analysis, indeed, yields positive results that are far worth your efforts. Here are the reasons why:
1. Through business analysis, you can make judgments based on facts rather than preconceptions.
The first importance of business analysis is related to your perceptions. You will undoubtedly abandon conclusions based solely on assumptions. Your insights can be applied to any element of your business.
For instance, consider your new store design, sales presentations, discount rates, site analysis, manufacturing procedures, or advertising campaign. Your decisions on these matters will now be based on real-world facts derived from your tests, saving you a significant amount of time, effort, and money.
2. The insights you gain from the business analysis can lead to long-term revenue growth.
It can help you maximise your revenue. As previously said, running business investigations for all crucial decisions will save you time and money. It is true since you will reject a project that will not produce the necessary results for your company. For example, you can test consumer behaviours and patterns to determine how they react to discounts or offerings. In this way, you can employ the strategy that they react to the most favourably, resulting in higher sales and profits.
3. You can avoid making the same mistakes again if you conduct business analysis.
It leads you in the right direction. Let’s consider resellers, for instance. What will happen if they base their pricing decisions solely on assumptions? For example, resellers once made the mistake of implementing larger discount rates in the mistaken belief that it would improve sales, but it did not. They opted for the biggest discount rate without conducting any kind of experiment.
In such a circumstance, they lost profitability as well as the number of sales generated. Had they tested the process first, they would’ve learned more about their consumers and been able to make better decisions about discount rates. This would also help businesses avoid making the same errors again.
These are only a few of the major advantages of conducting a company analysis. While going through the process, you will discover more benefits that are exclusive to your company. So, now that you understand the importance of business analysis, the next step is to cultivate an experimentation culture. But how do you do this?
Key Skills in Business Case Analysis Process for Optimised Pricing
Of course, you don’t want to undertake an experiment unless you’re best equipped. The following are the criteria that determine whether or not a business experiment will be fruitful. Examine them to see how these factors tie into your business.
1. Preparing the environment for conducting business exploration
The complexities of testing in business are different from those of most academic and medical research. In a competitive market, there are few options for randomised control trials.
Oftentimes, you must repair the ship while it is cruising in weather conditions over which you have little control. And that’s difficult, isn’t it? It’s not a pleasant thing to do. But this is particularly the case in this age of big data and artificial intelligence. So what you do is evaluate the opportunity costs of testing and be willing to change your methodology and scope as needed.
For instance, a B2B SaaS company in Australia was informed with evidence suggesting an unprofitable client category was beginning to change its purchasing behaviour and that a relatively little marketing effort could accelerate that shift.
However, the fear of losses loomed big, thus decision-makers established a high bar in terms of experiment duration, sample size, and technique to overcome organisational scepticism when far simpler means of testing the ROI were available. In their case, larger tests are approximately five times more expensive and result in delayed action in a volatile market.
The right setting is the foundation of any business analysis to boost your project’s productivity and dependability. Prioritise this before evaluating other factors.
2. Managing your data and strategic business analysis tools
You want reliable data for your experiment. In the case of machine learning projects, did you know that as much as 80% of the time and money is spent cleaning up the data due to issues? These include inconsistent inputs, obsolete ideas of customer behaviour, and legacy biases.
Data credibility can only be achieved with high value. You must develop trials based on data that you trust. Product returns, for example, are a trillion-dollar headache for international retailers. They’re only getting worse as Amazon Prime makes “free” returns a norm.
Customers can be asked if they plan to return their purchase, but ex-ante surveys are a poor predictor of this behaviour. What’s more, some businesses now provide discounts to customers who waive their right to return a product, an obstacle to purchasing in many categories.
A buyer’s order history provides a more solid foundation for testing. According to one study, when customers engage with products, such as zooming in to view the texture of the cloth, they are less likely to return the purchase. Those who order in a variety of sizes, on the other hand, are more inclined to return things. This data can be used to build predictions for relevant testing. Then spark discussion about website design, pricing, order-fulfilment practices, and terms and conditions.
It may be tough to obtain reliable data, but it is attainable. You only need to understand which variables are value predictors and then concentrate on getting data from these elements and utilise the data in optimising your prices.
3. Sound decision-making principles
Internal processes, particularly the necessity to cooperate to specify an issue, are the most challenging obstacles in testing. Many managers are good at asking questions, but not so good (or, in some cases, unwilling) at defining the plausible response to such questions.
Data, including self-correcting data just like in some AI systems, is never the answer to a management problem. Data is important, but it is meaningless unless managers learn how to interpret it to derive useful pricing insights.
Let’s dig deeper into price testing. Price testing should be a continuous aspect of effective marketing, but first, you have to define the assessment criteria. Testing in business essentially means comparing alternatives. There is a significant difference between using profit increase or revenue lift as the criterion, for example, because price changes often have an impact across various periods, not just the near term.
However, most businesses fail to establish the criteria they will use to analyse pricing tests, and thus waste time and money on a futile endeavour. Examining your decision-making helps increase corporate communication and cross-functional efforts to assess facts and execute solutions.
4. Simple but promising opportunities
Develop big plans but don’t get too caught up in your lofty goals. Several billion-dollar ventures begin as a modest concept, but firms frequently devote testing time and resources to large initiatives while disregarding minor ideas that, in total, might have a larger impact with much less risk.
Pricing is an excellent example as the effect varies by industry. But research shows that a 1% increase in price realisation for a multinational corporation often results in an 8% to 12% increase in operating profits. This is accomplished not by boosting the price on every order, but by averaging out to 1% extra while keeping the volume constant. These findings have remained continuous for decades, even before the internet became a commercial medium, and are anticipated to remain so into the future.
This is also why pricing can be the most important driver of profitability in your company. If you don’t already have a pricing team yet, then you should establish one. Our findings show that incremental earnings gains can begin in as little as 12 weeks with the right setup and pricing team in place.
The team can capture at least 1.0-2.25% more margin after 6 months using superior price management techniques. After 9-12 months, organisations are frequently generating 3-7% higher profits every year as they find more complex and previously unrealised possibilities, efficiencies, and risks.
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Bottomline
Market conditions are changing quicker than ever before. It is your duty to adapt your pricing strategy development or your business will fail. The rise of big data and digital transformation make many executives obsessed with how to manage data.
However, the finest companies worry over how they can harness their data to conduct actionable tests of new ideas. Realising the importance of business analysis is the first step. You too should consider testing in your organisation to be part of an ongoing dialogue with your market.
Experimenting serves firms in a variety of ways, such as assisting in fact-based decision making, providing insights for revenue growth, and keeping you from making the same mistakes. However, before testing, evaluate the conditions required, data, and your decision-making criteria. These elements will determine the success and significance of your experiment.
Businesses may not always have a complete picture of their operational environment. The importance of business analysis, rather than timeless insights, relies on promoting appropriate discussion among decision-makers in evolving business situations. Seek progress rather than perfection, and invest in mechanisms that enable people to offer even the seemingly small ideas. Leverage what you can for today while investing in tomorrow’s solutions.
For a comprehensive view on maximising growth in your company,
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Are you a business in need of help to align your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at team@taylorwells.com.au if you have any further questions.
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