Transcript Title of Presentation

Name Your Price
How Optimization Can Deliver Ideal Pricing
Strategies for Higher Revenues and Margins
Horia Tipi
Director, Product Management
FICO
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Be smarter about pricing—stop leaving money on
the table—out-maneuver your competitors
Think differently about pricing—you can
out-maneuver instead of engaging in a pricing war
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© 2014 Fair Isaac Corporation. Confidential.
Poll
What line of business do you represent?

Auto
 Mortgage
 Loan
 Deposit
 Card
 Other
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© 2014 Fair Isaac Corporation. Confidential.
Poll
How are you currently
handling pricing decisions?

Use historical data and competitor data
 Use Business Intelligence tools
 Use analytics
 Use optimization
 Use optimization but have outgrown
current solution
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© 2014 Fair Isaac Corporation. Confidential.
Most of Us Have Had This Experience
You’re ready to make a major purchase, like a car.
But you have some specific financing requirements.
And you’re being kept waiting as the terms of financing
are worked out—excruciatingly slowly.
The minutes tick by as the sales agent goes
back and forth between you and the finance
manager trying to get a deal approved.
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© 2014 Fair Isaac Corporation. Confidential.
What if Making the Right Deal Were
Faster and Easier?
► Every
offer optimized to:
► Balance
the objectives and constraints of multiple stakeholders
► Meet customer needs
► Comply with regulatory requirements
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© 2014 Fair Isaac Corporation. Confidential.
Close the Deal by Out-Pricing Competitors
► This
is not about under-pricing. Find the
sweet spot where offers fully meet the
needs and objectives of the consumer and
business and are therefore most likely to be
accepted and profitable.
► It’s
not just for auto sales. Apply to
any decision where there’s room for
discretionary pricing.
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© 2014 Fair Isaac Corporation. Confidential.
Customer-Centric Pricing Optimization
Key Aspects of Optimal Pricing
► Analytic
process of pinpointing best
choices among millions (sometimes
billions) of possibilities in complex
decisions
► Business
process of balancing multiple
stakeholder points of view
► Interactive
process of listening to and
sometimes negotiating with customers
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© 2014 Fair Isaac Corporation. Confidential.
“On average, a 1% price increase translates into an
8.7% increase in operating profits (assuming no
loss of volume, of course).
Yet we estimate that up to 30% of the thousands of
pricing decisions companies make every year fail to
deliver the best price. That’s a lot of lost revenue.”
Source: Using big data to make better pricing decisions, McKinsey & Company, June 2014
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© 2014 Fair Isaac Corporation. Confidential.
5 Keys to Out-Pricing Competitors
With Customer-Centric Pricing Optimization
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© 2014 Fair Isaac Corporation. Confidential.
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Simplify Complex Real-World Pricing Problems
Just a few of the factors to be considered in a pricing decision:
credit amount | credit term | discount amount | down payment, deposit or security |
customer credit risk | propensity and timeframe for purchase | price sensitivity impact
on take-up, usage, delinquency, attrition | revenue | profit | customer lifetime
profitability | portfolio-level objectives & constraints | segment-level objectives &
constraints | customer-level objectives & constraints | campaign objectives &
constraints | regulatory compliance | capital management objectives & constraints |
dealer or partner objectives & constraints
Even with this small sample, the combinatorial possibilities are immense.
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© 2014 Fair Isaac Corporation. Confidential.
Solving Complex Real-World Pricing Problems
Fuzzy problem resolution
delivers approximate answers
Sharp problem resolution
delivers accurate, reliable answers
No limits on data types/quantities
or predictive model inputs
Packaged solutions require
problems to be “dumbed
down” to fit limitations of
modeling tools and
optimization engine
True customer-level optimization
(segments as small as 1)
Encompass linear and
non-linear relationships
Optimize for discrete price
points ($2.99, $3.19, etc.)
Constraints applied at any level
(portfolio, segment, customer)
Balance competing objectives
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© 2014 Fair Isaac Corporation. Confidential.
Client Success: Pinpointing Where to Raise Prices
CHALLENGE:
RESULTS:
► Bank
► 17%
SOLUTION:
► $20
needed to know where it could raise
prices without raising attrition rate
► Optimize
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price and initial credit line
© 2014 Fair Isaac Corporation. Confidential.
decrease in loss while
maintaining revenue
increase in profit per account
2
Make Analytics Transparent to Business Experts
It’s important to be able to look inside an optimization solution to
understand how it works and build trust in the output.
“Black box”
vs.
“Transparent box”
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© 2014 Fair Isaac Corporation. Confidential.
Users Can Expose and Examine Any Part of the Process
For Example
► Are
profit predictions reliable?
CFO checks cost of funds in the historical
data used to model profitability.
► What
would happen if we slightly
loosened our loss constraints?
Risk manager uses simulation to explore
tradeoffs with margin and revenue.
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© 2014 Fair Isaac Corporation. Confidential.
3
Enable Collaboration to Drive Optimization
Put business users in control of pricing optimization.
Give them role-based interfaces for providing inputs to the process,
interacting with each other and reviewing results.
That’s how you embed smart pricing into organizational DNA.
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Let’s Zoom Into This Big Picture
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Role-based Interfaces
and “Single Source of
Truth” Repositories for
Data, Analytics and
Business Rules
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© 2014 Fair Isaac Corporation. Confidential.
4
Integrate Backroom Policy Making with Real-Time
Customer Interactions
Extend the collaborative process all the way to the frontline.
Dealers and sales agents can have meaningful conversations with
customers, then instantly generate new optimized offers based on customer
choices and preferences.
Use for negotiating alternative deals, customizing product bundles, offering
individualized debt consolidation solutions…
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© 2014 Fair Isaac Corporation. Confidential.
Pricing responds to
customer needs and
POS choices while
meeting all company
requirements, including
regulatory compliance
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© 2014 Fair Isaac Corporation. Confidential.
Client Success: Alternate Deal Making at Point of Sale
CHALLENGE:
RESULTS:
► Auto
► Increase
finance company needed to reduce
decline rates and make exception decisions
faster and more consistently
► Real-time
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► Decrease
► Lower
SOLUTION:
optimization of alternative deals
© 2014 Fair Isaac Corporation. Confidential.
revenue est. $12M US
► Higher
labor costs est. $3M US
decline rates
dealer and customer
satisfaction
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Be Able to Turn on a Dime for Market Maneuverability
► Provide
stakeholders with rapid operational feedback and the means to change
optimization parameters based on results
► Create
automated workflows that speed approval and deployment of adjusted
pricing strategies
► Implement
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analytic learning loops to drive performance improvements
© 2014 Fair Isaac Corporation. Confidential.
Compare Actual to Simulated Results
Simulated
On-plan
Underperforming
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Gaps are opportunities
for learning: Use analytics
to explore causes
Business experts can
rapidly change pricing
policies, without the
need for IT assistance
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© 2014 Fair Isaac Corporation. Confidential.
Fully Configurable to Your Pricing Process
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© 2014 Fair Isaac Corporation. Confidential.
FICO Would Like to Assist You
► Schedule
a pricing assessment:
► Systems
readiness
► Assess existing models
► Rapid pilot
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© 2014 Fair Isaac Corporation. Confidential.
Questions
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© 2014 Fair Isaac Corporation. Confidential.
Thank You!
Horia Tipi
[email protected]
646-267-2306
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Learn More at FICO World
Related Sessions
►Helping Your Dealers to Create a Better Customer Experience
►How Optimization Helps You Turn Questionable Data…
Products in Solution Center
►FICO®
Deal Pricing Optimizer, FICO® Optimization Modeler, FICO® Xpress Optimization Suite
Experts at FICO World
►Matt Stanley ([email protected])
►Horia Tipi ([email protected])
White Papers Online
►Five Keys to Out-Pricing (Not Under-Pricing) Competitors
(http://www.fico.com/en/request_asset/?asset_id=13665)
Blogs
►www.fico.com/blog
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Please rate this session online!
Horia Tipi
[email protected]
646-267-2306
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© 2014 Fair Isaac Corporation. Confidential.