Pricing optimization in Africa: the challenge!

I’ve just come from the middle east, visiting different markets where we’ve seen huge pricing competition battles among operators. One of my clients requested my point of view on pricing and how to fight in such a pricing war. Here it is.

Few levers have as much power to influence profitability as pricing does. For a typical company, a 1 percent increase in price boosts profits two to three times as much as a 1 percent increase in sales volume. Mobile operators have to improve both pricing strategy and their ability to manage pricing over the long term in a scenario of a real war: a pricing one. The key thing here for the operator is to react to the competitive landscape that affect lots of the emerging markets while tapping their full pricing potential in the mid term. A rapid diagnostic analysis allows operators to quickly identify the largest pricing opportunities and tailor an approach to go after them successfully. Our work has helped our clients to gain market share, enhance their product positioning, and grow their bottom line. This should be the main objective in the short term.

mmC GROUP’s Approach

We approach pricing strategy by market, product and transaction. We identify how customizing prices across markets and products can affect buying behavior and differentiate offerings. Working jointly with a client team, we define and implement improvements to the pricing process-everything from integrating it with product design to creating tools and models that measure its financial impact.

Price Optimization Models are business and mathematical programs that calculate price elasticities, or how demand varies at different price levels, then combine that data with information on costs and inventory levels to recommend prices that will improve profits. Price Optimization Models simulate how customers will respond to price changes, supplementing managers’ instincts with data-driven scenarios. The insights help to forecast demand, develop pricing and promotion strategies, control inventory levels, and improve customer satisfaction.

Please take a look at a detailed case of pricing that was conducted in 2008. Now that it has been implemented with success we can share it with the whole of you. It illustrates how to conduct a repricing exercise in a challenging environment with the main objective of boosting acquisition.

Methodology

To implement a Price Optimization project, practitioners should:

• Select the preferred optimization model, determine the desired outputs and understand the required inputs;
• Collect historical data including product volumes, the company’s prices and promotions, competitors prices, economic conditions, product availability, and seasonal conditions as well as fixed and variable cost details;
• Clarify the business’ value proposition and set strategic rules to guide the modelling process;
• Load, run and revise the model;
• Establish decision processes that incorporate modelling results without alienating key decision makers;
• Monitor results and upgrade data input to continuously improve modelling accuracy.

Common Uses

Price Optimization Models are used to determine initial pricing, promotional pricing and markdown (or discount) pricing.

• Initial price optimization is well-suited to businesses that have a fairly stable base of products with long life cycles, such as grocery, chain drug, and office-supply stores, and manufacturers of commodities like packaging and tools.
• Promotional price optimization helps businesses set temporary prices to spur sales of items with long life cycles, such as newly introduced products, products bundled together in special promotions and loss leaders.
• Markdown optimization is well-suited to businesses that sell short life-cycle products that are subject to fashion trends and seasonality, (apart from telecom). Examples include service businesses like airlines and hotels, and certain kinds of speciality retailers, such as apparel retailers, mass merchants and big-box stores.

Case you have any comment, feel free to post. Enjoy the reading.

CVA, Flying from Cairo to Madrid