Pricing is the most difficult element of a company’s marketing mix to get right. Few small businesses take a scientific approach to pricing, instead relying on trial and error as well as the owner’s gut. Slugging around with unscientific pricing experiments can easily cost a company thousands of dollars a month in lost profits. Even worse it can lead to lost customers that otherwise would have stayed if the proper pricing were used. Up until recently, only very large companies could afford the technology and brainpower needed to set better prices in a way that would maximize profits. Big Data for Small business is the bridge to better pricing decisions.
Now through the rise of server virtualization, cloud storage and other innovative technologies even small companies can optimize their profits like the big boys. The ability to store, process and analyze massive amounts of information (“big data”) from your business and industry is now affordable. Google BigQuery, for example, charges less than 3 cents per month to store a gigabyte of data; 1 penny to insert 100,000 rows of information into your database and charges nothing to process the first terabyte (1,000 gigabytes) of data each month. DigitalOcean can deploy a high-performance SSD cloud server in less than 60 seconds starting at just $5 per month. Powerful analytics programs that crunch the numbers for you start at just a few hundred to a few thousand dollars per year. Cost is no longer an excuse to implement poor pricing strategies.
So how can you use big data once you start capturing it? Here are some basic pricing strategies that are proven to boost profits:
Use differential pricing
Big data provides the information needed to identify trends among different types of buyers. These trends can be used to optimize your pricing by group. Offering different prices to different groups – differential pricing – has been used since at least the 1930s as an effective strategy. Every time you buy an airline ticket you are subject to differential pricing. Two passengers on the same flight could pay wildly different prices based on when, why and how they bought it. Offering lower prices with high volume purchases is another great example of differential pricing. With big data you can track an almost unlimited number of variables about your customers and crunch that information to create groups among like-minded buyers and set the best price for them.
Target the “browse and bail” crowd
Ecommerce shopping cart abandonment rates are one of the biggest challenges faced by online sellers. On average 68 percent of users that add something to a website shopping cart don’t complete the purchase. Some companies have found a solution using Big Data to improve this depressing statistic. Freshplum offers online retailers a solution to help increase the number of browsers that complete a purchase. Using big data, they can identify users that are about to abandon a purchase with 99 percent accuracy and offer them a special discount – just for them – to increase the odds they’ll buy. According to several case studies the company has boosted profit margins by as much as 13 percent for some clients.
Use versioning to help your customers pay you more
Big data can also help you determine if there is a market for different versions of your core product or service. Maybe there are potential customers who simply won’t or can’t pay for your main offering. But a stripped-down version at a lower price could be theirs. Some customers may also be willing to pay more for premium versions. By offering several options you create multiple opportunities for customers to find a fit between their needs and what you’re selling.
Big data is here to stay
While big data has been a buzzword for over a year now, it’s just beginning to trickle down into the small business world in the form of affordable products and services. Don’t ignore it. It’s not a fad. This is one of the most important trends in technology that can help you earn thousands of dollars more per month.
