Fact-based pricing with cutting-edge econometrics
August team leveraged cutting-edge econometrics to estimate the revenue effect of price changes and to support fact-based pricing development of a Nordic consumer services company.
Interested in hearing more? Contact Markus Valoaho
Challenge
The consumer services company faced profitability challenges despite being on a high-growth trajectory in an expanding industry. Due to the capital-intensive nature of the business, there was very little opportunity for operating cost reduction and pricing development was identified as the primary lever for profit improvement.
Brave the future
To make progress on pricing development, the company had experimented with higher prices at selected locations. But assessing the actual revenue impact of these changes remained a major challenge. Simple comparisons of outcomes over time or across locations provided misleading results, because several forces affecting demand were concurrently at play. To tackle the analytical challenge, August team combined internal transactions data with extensive external data on location-specific characteristics, such as service features, addressable market sizes, demographics, and competitors, for all service locations. With the data in hand, we leveraged advanced econometric methods, such as synthetic controls and double machine learning, to tease out the causal effect of the price changes on revenue.
Impact
By providing solid insight into the revenue effect of the price changes, we equipped our client with robust evidence on the success of the price experiments and a strong foundation for fact-based pricing development going forward.