Chief Pricing Officer

The art and science of price strategy is not easily understood, let alone mastered. P.J. Jakovljevic at Technology Evaluation Centers (TEC) has undertaken this field as part of TEC’s coverage of supply chain issues.

Jakovljevic demonstrates keen insight in the not-to-be-underestimated area of pricing and offers several interesting articles via the TEC blog. He recently posted Part 2 of his analysis of SignalDemand, which I encourage you to check out, along with his overview of other pricing technology vendors. Here’s a brief excerpt to give you an idea:

Pricing Science of Matching Supply and Demand

Other price optimization solutions really only consider the demand side of the pricing equation, and these results are insufficient for manufacturers to make decisions when they need information on capacity and production constraints as well. SignalDemand’s hand-picked team of scientists and mathematicians from prestigious universities have built a pricing science based on eight pending patents.

This sophisticated science drives the recommendations provided by the software application. When making decisions on margins, the idea is to account for all major profit drivers such as to

• align strategic business objectives with pricing decisions;
• understand demand drivers to forecast future sales;
• account for fluctuating costs;
• on the supply side, account for asset utilization, available capacity, and inventory situation; and
• determine the most profitable product mix for a given demand.

Accounting for all the above factors helps with much more complete, consistent and actionable information to better anticipate future costs, forecast demand, identify poorly performing products or customers, and explore projections in the context of historical sales.

I encourage you to check it out along with his overview of other pricing technology vendors and general supply chain coverage.

SignalDemand: Dealing with Supply- and Demand-side Pricing Matters — Part 1

SignalDemand: Dealing with Supply- and Demand-side Pricing Matters — Part 2

The TEC Supply Chain Logistics Blog

One particular phrase in Obama’s inauguration speech really struck a chord with me and the folks I work with at SignalDemand. Obama declared he would…

“restore science to its rightful place”

To our ears, that sounded like a ringing endorsement for the work we do.

Science isn’t limited to the R&D labs - it should be at the heart of business. Applied science can provide the concrete evidence and predictive models required for making strategic, high-impact business decisions when thousands of variables and millions of potential outcomes are involved - way beyond the realm of standard business software or spreadhsheets. The field of wholesale pricing is a prime example and it’s a white hot area on the cusp of reaching its potential. It’s encouraging to hear that the new administration plans to refocus on science.

So, do you think he’s going to do it? Cast your vote by commenting below on whether Obama will “restore science to its rightful place.”

Great story in today’s Wall Street Journal about SignalDemand customer Cargill and how the company’s using information to make informed decisions to beat the recession. Cargill reported strong earnings on Tuesday for Q4 ‘08, beating earnings from a year ago by 25 percent. Those are really impressive numbers, especially given the sharp drop in commodities prices during that time.

What’s most striking about the article is how forward-thinking the company is when it comes to buying and selling product. It’s very reminiscent of Michael Lewis’ fantastic book Moneyball about how Oakland A’s General Manager Billy Beane was able to exploit market inefficiencies in order to field an inexpensive, but competitive team. Here’s a great example:

For instance, this past fall when global credit markets froze up, Cargill got wind of ships full of soybeans stranded in ports because buyers ran into financial trouble, people familiar with the trades say.

Cargill’s traders knew they could profit by buying the stranded beans at low prices, then shipping them to Cargill’s own factories to be crushed into vegetable oil.

That’s just plain smart business right there. Of course, SignalDemand is also one tool Cargill uses to get more and better information - in particular to help the company balance demand, supply, cost and product mix decisions. SignalDemand’s software analyzes Cargill’s historical pricing, USDA Market activity, sold positions, inventory and supply constraints, and develops detailed pricing and demand elasticity models for each of the markets in which Cargill sells its products: spot, mid-, and long-term. The system enables insight into the trade-offs between each channel, giving the pricing team  the confidence to make informed decisions about pricing. You can learn more about it here.

Cargill CEO Greg Page told the WSJ that information and informed decisions are key to the company’s success:

“When we do a good job of assimilating all those seemingly unrelated facts, it provides us an opportunity to make money … without necessarily having to make directional trades, i.e., outguess the weather, outguess individual governments.”

Congratulations to Cargill on its outstanding success as well as its ability to use smart pricing and informed decisions to stay on top of the competition.

I first met Seth Godin, the prolific internet marketeer from the early Yahoo! days, in New York City. It was midnight and we were standing next to one another at the Marriott reception counter, checking in, both fresh from the United flight from SFO. We were both speaking at the DMA conference (me on email marketing, Seth on everything). We conversed on optimizing the check-in procedures, refining the experience. Not much has changed on that front, but here he is, circa 2009, talking about pricing on his blog:

Change your pricing

When a restaurant goes from a la carte to either a buffet or a prix fixe meal, it is able to find a new class of customers.

Could a law firm charge by the project? When I incorporated Yoyodyne, a fancy firm charged us a fix rate.

Netflix went from charging by the rental to charging by the month.

We use tolls to charge people who drive over bridges more than other folks. We don’t hesitate to charge people ordering steak more than people ordering pasta in a restaurant. Could the library charge frequent readers more? What about insurance companies charging more to young families (more likely to have a baby).

Ski areas have a huge fixed cost base (land, grooming, etc.) so they get greedy, sell too many lift tickets and the lines get long. Fixed pricing encourages people to ski a lot, at peak times. What if only cost $3 to get on the mountain, plus a small charge for each lift ride and a premium price for popular lifts at popular times? The technology is already there, the only reason not to try it is momentum.

If you’re a copywriter or masseuse or other sort of freelancer, how many retainer clients do you need to relax and spend more time on the work, less on the billing/looking part? What happens when an artist does this?

Why don’t airlines experiment with auctioning of seats, baseball card style? You could buy the rights to a seat for $200 (speculating, if you like) and then try to sell it off as the flight time get closer–it’s not hard to imagine an easy to use website for these transactions. The seat might change hands a dozen times, earning the airline a processing fee each time, and enriching those that want to start trading this expiring commodity. Sports teams are already trying to figure out how to make this work.

Changing your pricing changes your story.