In this post, I sum up 5 value creation opportunities with data and analytics related to revenue.
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, …)?