Segmentation Analysis

Segmentation Analysis, in the traditional sense, is linked to marketing where the market is sub-divided into smaller target groups based on similar attributes. Fundamentally, each target group would react in the same manner, hopefully, to a specific marketing campaign. However, segmentation has evolved far beyond the basic tenets of marketing segmentation. At their root is statistical clustering of some form and/or optimization models to divide a large a set of data into smaller sets with uniform descriptive and/or probabilistic behavior. A major misconception for many of our customers is that market segmentation and price segmentation do not have to produce the same segments. The reason is simply the objectives can be different between pricing segmentation and marketing segmentation.

Outsourced Segmentation Analysis

Our expertise is the mathematical modeling and optimization modeling used in segmentation. Because of our deep exposure to pricing in general, Codarex is uniquely placed to provide segmentation services to address not only marketing needs but pricing at a fundamental level. Segmentation typically is performed annually at best. Because of this segmentation results will grow stale and must be updated. New customers are constantly added; products are introduced/and retired; marketing programs change; and company structure can fundamentally change. This list of examples can contribute to making segments stale. Codarex provides services to perform

Pricing Segmentation to drive pricing actions. Typically the segmentation results are uploaded and used by pricing software to determine the best offer prices for customers and products over many dimensions and attributes
Marketing Segmentation for pricing effectiveness and profit optimization
1. Customer Segmentation – Identifies key customer groups who are likely to make purchases in the future and predicts how much they will pay for new items
2. Lead and Opportunity Scoring – Classifies prospects and sales opportunities to maximize sales team utilization
Marketing Surveys: Designing, conducting and analyzing surveys to understand customer drivers of behavior

The typical segmentation analysis process involves the following steps:

Internal and external data request – price book and transaction and master data
Internal Data transformation and loading into our business intelligence and analytics appliance
External data limitations, eg access to competitive pricing information, financial metrics, etc.
Data review
Optimization/stastical modeling and review
Review results and repeat when necessary to accommodate new changes

The process time-line depends heavily on the extraction, transformation and loading of the internal and external data files.

While segmentation analyses can be completely mathematically driven, it is also possible to create manual segmentation by adhering to a few clustering, pricing sensitivity and willingness-to-pay rules. This type of exercise is typically considerably shorter in length, and although the solution is a prior sub-optimal, it usually is easy to digest for users. This is the Art of Segmentation, as opposed to, the previously described science of segmentation.

Price Book Process

List Price Optimization

Price Books or Price Catalogues typically are issued once per year. In addition, in our experience, most of our customers may only apply minor updates semi-annually or quarterly, if at all – typically cost adjustments for raw materials increases. The process of preparing and setting the prices for products and/or services in the price book is a time-consuming and data-demanding process and intimately connected to other pricing functions and other departments. The annual price book update will contain, but not limited to, the following,

Everyday pricing updates
New product updates
End-of-life pricing and product removal
Internal cost and external vendor cost changes
Key product value maps
Key product/service competitor information
Geographical considerations and variations
Bundle pricing

Furthermore, there are strategic objectives that are over-arching goals for the price book. Lastly, the process is typically under severe time constraints since the updated price book may have to be printed and sent out to customers and it will definitely need to be uploaded into IT systems. It is no wonder that setting the annual price book can take 3 months to 6 months and have considerable draw on pricing analysts’ and business analysts’ resources and time. The issue is that this process runs concurrently with analysts’ tactical day-to-day functions that can arise from marketing, supply chain and the sales force to name but a few departments.

Outsourced List Price Optimization

The exercise of setting prices is always a balance between the Art of Pricing and the Science of Pricing. The List Price Optimization (LPO) is a complex process that involves data, mathematical modeling and reviewing results in tandem with customers. At its root, we unwind every transaction to understand why a customer paid the price on the invoice and account for all differences from list price. We derive real discounts and associate real customer performance to the difference dimensions that are important for pricing. The typical process involves the following steps: