Pricing Model and Price Variance
In MarketRedesign, we create highly customized pricing models for our clients using machine learning. The predicted price that our model produces is called the benchmark price as it provides a target price accounting for the customer’s willingness to pay based on the pricing pattern found in the client’s transactional data. Our benchmark price serves as a guideline for sales negotiation informed by a smart analysis based on evidence of data.
Price variance is the total difference between the benchmark price and the actual price. We only take the difference when the benchmark price is higher than the actual price as the benchmark price will be ignored if it is lower than the actual price.
Price variance percentage is the percentage of price variance in revenue.
Price variance and price variance percentage shows the price potential the client has based on our benchmark price.
Price Variances in a Vertical: MarketRedesign has been active in pricing consulting more than ten years now, during which period amassed quite an amount of experience and data sets. We group them into different industry sectors, or verticals, and find interesting patterns in each vertical. We can only compare clients meaningfully if they are in the same vertical.
Here is the price variance percentage chart for our clients in a selected vertical:
AutoML refers to Automated Machie Learning. Machine Learning (ML) algoritms build models largely automatically once they get cleaned up data, but still there are quite a bit of manual work to be done to make ML work, for example, data preprocessing, feature selection/generation and hyperparameter tuning. AutoML aims to reduce these manual work so that human experts can focus on more sophisticated analysis and speed up development process.
We have an in-house AutoML pacakge which we use for benchmarking purposes. It provides a useful baseline model upon which to improve and customize. We used the AutoML package for price variance comparison as it is a good way of making comparable baseline models for each client in a vertical.
In the above chart, we see a high variance in price variances among clients in a same vertical. This may be due to different levels of commercial control over pricing and governance. With this baseline result as a starting point, MarketRedesign’s customized pricing model can further identify pockets of price potentials more accurately and help improve the client’s value recovery.