Value creation opportunities with data: the revenues side
Hello, I am Louis-David Benyayer and you are reading Datanomics and strategy, my weekly newsletter on business strategy in a datanomics era.
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For this edition, I‘ll propose a synthesis on the value creation opportunities with data from a revenues perspective. I’ll also share good news and interesting research published recently.
Value creation: the revenues side of the coin
Last week I listed 4 elements that act as a check-list for value creation. Today I want to be more specific on the opportunities triggered by data and analytics and I will concentrate on the revenues side of value creation.
Before that, let me sum up how data connects with value creation and competitive advantage:
Competitive advantage stems from an ability to generate more value than competitors
Superior value can be achieved either through an advantage on cost or through differentiation (or both)
These types of advantages are achieved because of specific resources and capabilities, among which data-related resources and capabilities
Business capabilities refer to the capabilities that are not related to data and analytics (it may be product design, marketing, customer support, …). They are necessary to capture the promises of value creation (refer to the example of the bank last week).
Now, let’s be clearer on value creation. For that, I’ll use the Dupont Analysis framework. It’s a description of the operational levers that influence the evolution of the Return on Investment (which is one way, not the only one, to measure value creation).
Let’s focus now on the upper right side of the graph to see how big data and analytics can influence positively the ROI.
Sell more to existing clients. According to McKinsey, 35% of what consumers purchase on Amazon come from product recommendations. According to BCG, revenue increase by 6% to 10% when the experience is customized.
Sell new products before the competition. Through real-time social media text and sentiment analysis, Wallmart was able to spot early the “cake-pops” trend and was the first to massively distribute this new kind of product.
Market share increase
Conquer new clients. Savings catcher by Wallmart alerts customers if the items they bought is sold at a lower price by a competitor and sends a gift voucher of the price difference.
Develop new value propositions to attract new clients. Honeywell provides industrial control systems and equipment to the oil and gas industry. In 2015, Honeywell launched its Connected Plant business, which can optimize process outcomes through control systems. Honeywell’s suite of connected-plant IoT solutions can improve facility uptime by 5%, increase production yield up to 7%, and enhance operator safety.
Sell data. This summer, Amazon announced they will help Toyota build a platform to help manage and monetize data gathered from the automaker's global vehicle fleet.
Customized pricing. Prices evolve according to who you are, from where you connect, at what time of the day, … Criteria to fine-tune pricing according to each client’s situation and willingness to pay are numerous. Which poses a question of trust on the price and triggers the clients to game the algorithm or implement strategies in reaction (see below in the research section).
The 5 main value creation opportunities when it comes to revenue:
Capture emerging demand through social networks analysis
Increase sells with value-adding services, recommendation and customization
Increase market share through differentiation
Sell data services
Improve price mix with customized pricing
Big data and analytics effects are on decision-making processes. Better decision-making can, in turn, lead to improvements in organizational performance. So the two questions you should ask yourself when framing a project:
which component of value creation will be impacted?
what operational decision will be influenced (setting a price, offering a product, …)?
In an academic paper published a few months ago, a team of researchers present the results of a randomized field experiment involving more than 100 million customers and 11 thousand retailers with Alibaba. One group received promotions for products in their shopping cart and another did not.
Not surprisingly, in the short term, the promotion program doubles the sales of promoted products on the day of the promotion. But, in the long term, this promotion program intensified strategic customer behavior in the post-treatment period in two ways:
increasing the proportion of products that customers add to their shopping cart upon viewing them, possibly due to their intention to get more shopping-cart promotions
decreasing the price customers subsequently pay for a product, possibly due to their strategic search for lower prices.
You can find the article here: The Long-term and Spillover Effects of Price Promotions on Retailing Platforms
Rankings are not everything, still, I am very pleased to share that MSc in big data and business analytics at ESCP has been ranked #4 worldwide (out of 97 programs). Not so bad for a first participation to this ranking. We have celebrated with colleagues and students and now, … back to work!
Thank you for reading, I hope it’s been useful to you. If so, please consider sharing the newsletter with people you feel could be interested.
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Have a good week
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