Pricing decision-makers don't understand the profit-and-loss impact of their choices, according to a BPM Forum study.
Posted Jun 20, 2006
Many companies brag about how much they've invested in market intelligence tools and resources, yet many still go with their gut in making key decisions, according to a new study, "Market Vigilance, Product Diligence: Powering Product Marketing Effectiveness," from the Business Performance Management Forum and Vistaar Technologies. Seventy percent of respondents classify their opinion of the quality of data being conveyed between product marketing and other internal constituencies as "average" to "very low."
Despite the implementation of big-ticket technology infrastructures, the vast majority of respondents make high-level planning decisions and revenue forecasts based on internal data generated and communicated through outdated spreadsheets. According to Diganta Majumber, forum director, one of the executives surveyed talked about the significant dollars his company had spent on technology, but likened the forecasting capabilities to that of an abacus. Close to 40 percent of respondents say they could boost company revenue by double digits with more better data and improved analysis and forecast alignment.
Many companies sell hundreds of products, but don't have any idea how the change in pricing in one product will affect not only the profitability of that item, but the profitability of other products, says Bala Srinivasa, senior vice president, product marketing for Vistaar. "Product managers who make pricing decisions don't learn the impact [of those choices] until far after the fact. The key things they do understand are their products, but if a competitor makes a price change, they don't know the impact if they try to match or beat that price change."
A competitor might lower the price on product A to cross-sell highly profitable products B and C, and may already have cross-selling training, and marketing in place. But another company may not even sell product B (meaning no cross-sales opportunity) and may be ineffective at cross-selling product C. So lowering the price on product A may be profitable for the competitor, but could lead to losses for the other company, Srinivasa says.
"Companies have spent millions on automating transaction processes, but they are relying too much on spread sheets and gut instincts when looking at the impact of their decisions on actual revenue and margin," Srinivasa says. "They need technologies that get analytics into [product managers'] hands that helps them determine the impact of their decisions from a profit and loss standpoint."
"Companies tell us that despite all of the money that they've spent on technology, they're completely unable to forecast what-if scenarios," Majumber says.
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