Price Optimisation

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Business Issue

Businesses can obtain a real competitive advantage by determining the optimum price for a service or product and understanding the behaviour of markets, customers and competitors. Price optimisation solutions (also known as yield or revenue management solutions) enable organisations to achieve this. These solutions address:

  • How best to vary prices
  • How best to control availability
  • How best to adjust production capacity

Many organisations fail to recognise the very direct link that pricing has to profitability. Businesses without price optimisation solutions often make reactive responses to changes by increasing or decreasing production, under- or over-charging, and discounting with little or no detailed understanding of the likely impacts. This focus leads to suppression of demand, dilution of margins, reduced revenues and a lack of responsiveness to the market.

Other organisations have often failed with price optimisation solutions, because:

  • There is a lack of support or confidence from senior management
  • Different business units within the organisation price to suit their own purposes.
  • Pricing processes are poorly integrated into the organisation

Truly informed price optimisation requires the use of appropriate analytical techniques to segment customers, forecast behaviours and optimise segment price offerings. These need to be aligned with the strategic, tactical and operational objectives of the organisation to exploit sources of hidden value and improve operating margins.

High level Price Optimisation processes

Our Expertise

Capgemini’s price optimisation capability lies within our Operational Research group based in the U.K. and has unparalleled experience of solving problems and delivering solutions for clients worldwide. Capgemini Operational Research has competencies in the related analytical areas including forecasting, customer analytics, business case analysis, simulation, data mining and optimisation. We use specialist analysis software packages such as Clementine, SPSS, SAS, Manugistics, Arena, Witness, Crystal Ball and @Risk.

To support client engagements and solution development, Capgemini has formed relationships with several leading technology and information providers. These relationships ensure our solutions are robust and powered by high-quality, accurate data management.

Competency

Activities

Deliverables

Diagnostics
  • Assesses an organisation’s current price optimisation performance in key areas, benchmarking against best practice
  • Identifies and makes comparative assessment of existing price optimisation techniques
  • Evaluation of existing models, third party packages and the bespoke development option to ensure the correct solution is identified for specific requirements
  • Business case to quantify the benefits from new techniques and justify investment
  • Identifies immediate opportunities for change and quick win improvements
  • Creates a transformation blueprint for the organisation, outlining change required & timescales
  • Identifies & prioritises of realistic pricing optimisation requirements
  • High-level solution design
  • Demonstrates clear value & financial benefits of implementing pricing optimisation

Analytics & Development
  • Data mining to investigate the availability, completeness and consistency of historical data in order to improve data quality.
  • Customer segmentation groups consumers into recognisable categorisations
  • Forecasting and simulation model building to analyse and predict customer behaviour and response to change
  • Determine willingness to pay for segments (including temporal effects) and calculate the most profitable pricing level under regulatory constraints & organisational objectives
  • Design of supporting governance structures, business processes and organisational design
  • Rapidly deployed pilot pricing model & customer segmentation
  • Consolidated customer information

Implementation
  • Continued information management
  • Full model development
  • Full pricing model
  • User training
  • Business process change

Business Benefits

Many business benefits can be realised from the implementation of an effective price optimisation solution:

  • Standard, enterprise-wide pricing initiatives aligned with operational, tactical and strategic objectives
  • Consolidated “single source of truth” of customer information
  • Increased revenue generation through direct contribution to bottom line figures
  • uild market share through fact-based commercial decision-making
  • Improved responsiveness to market change and price competition
  • Increased customer satisfaction through improved understanding and responsiveness
  • Increased predictability of business outcomes
  • Improved ability to respond to better informed and more demanding customers
  • More efficient and effective use of enterprise resources

Application Areas

Pricing optimisation solutions have wide-ranging applicability across many sectors:

  • Transport: airlines, rail operators, shipping & freight companies, car rental
  • Entertainment & Hospitality: cinemas, restaurants, hotels
  • Telecommunications: internet & telephone network providers, cable & digital TV providers
  • Energy & Utilities: electricity & gas generation & transportation companies
  • Media: TV & radio, newspaper & magazines
  • Manufacturing & Retail

Related Success Stories

  • Economic segmentation and revenue enhancement

    The client was a highly successful UK holiday company, but they had little understanding of their customers at a segment level. We used data mining and market research to apply yield management techniques to increase profit and improve client satisfaction.
    PDF documentDownload - 59kb

  • International price comparison

    The client sold a range of products to private and public hospitals throughout Europe, but had inconsistent pricing. We developed a statistical analysis model to allow the client to investigate the reasons for price variations in different countries or segments.
    PDF document Download - 39kb

  • Revenue yield analysis tool

    We designed and built a prototype decision support tool to enable the client to monitor all their revenue drivers (not just sales volumes) and hence improve revenue yield.
    PDF document Download - 36kb

  • Retail Space Occupancy Charging

    We evaluated potential charging frameworks for retail space to support a clear understanding of the underlying costs and values of different categories of retail space, allowing fair negotiations between two subsidiaries.
    PDF documentDownload - 31kb

  • Business case for differential pricing

    The client was unsure about the potential benefits of being able to differentially price items during a sale. We analysed their sales data to determine price elasticities, and developed a model to optimise departmental markdown budgets.
    PDF document Download - 42kb

Related Capabilities