Playing every hand better in the pricing game

Playing every hand better in the pricing game

By Walter Baker, Nicolas Magnette, and Richard Verity

How leading companies are harnessing data science to optimize pricing and boost returns by 2 to 7 percent.

In many business-to-business sectors, margins are under pressure as more sophisticated procurement teams search for cost savings from a growing array of high-quality suppliers, including some in emerging markets. In this more competitive environment, sales teams may be quicker to lower prices—especially if they know too little about competitors’ prices or how much the customer is willing to pay.

In pricing, knowledge is power. Central pricing teams need to know enough to set the right limits on discounts for each geography and customer segment, for example. They also need the capacity and authority to prevent sales teams in the field from lowering prices too far.

Pricing speed is also increasingly important as online sales channels and instant quotes become table stakes in many B2B marketplaces. More buyers expect to be able to compare a wide range of prices and alternative products across vendors at any time. Indeed, we believe half of B2B sales will be made in digital channels by 2018. In this increasingly digital marketplace, more customers are willing to accept or even require dynamic pricing, just as they do when buying airline tickets, books, and Uber rides.

About the author(s)

Walter Baker is a partner in McKinsey’s Atlanta office, and Richard Verity is a partner in McKinsey’s London office. Nicolas Magnette is VP and general manager for Periscope, a McKinsey Solution.
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