As we have written before (see for example, 1, 2, 3), more and more marketers have become involved in big data analysis.

Now, comes new research from McKinsey about how the analysis of big data can be used to improve a company’s pricing decisions.

McKinsey’s Walter Baker, Dieter Kiewell, and Georg Winkler note that:

“It’s hard to overstate the importance of getting pricing right. On average, a 1 percent price increase translates into an 8.7 percent increase in operating profits (assuming no loss of volume, of course). Yet, we estimate that up to 30 percent of the thousands of pricing decisions companies make every year fail to deliver the best price. That’s a lot of lost revenue. And it’s particularly troubling considering that the flood of data now available provide companies with an opportunity to make significantly better pricing decisions. For those able to bring order to big data’s complexity, the value is substantial.”

“We’re not suggesting it’s easy: the number of customer touchpoints keeps exploding as digitization fuels growing multichannel complexity. Yet, price points need to keep pace. Without uncovering and acting on the opportunities big data present, many companies are leaving millions of dollars of profit on the table. The secret to increasing profit margins is to harness big data to find the best price at the product — not category — level, rather than drown in the numbers flood.”

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