January 5, 2013-
PROS CEO ANDRES REINER PULLS BACK THE BIG DATA CURTAIN AND REVEALS HOW YOU CAN OUTPERFORM YOUR COMPETITION
The movie “Moneyball” is the saga of Oakland A’s General Manager Billy Beane, who relied on Sabremetrics, detailed statistical information about players, to build his team. In one scene in the movie, actor Jonah Hill, who plays Beane’s (Brad Pitt’s) assistant general manager, explains that the single statistic that best predicts a baseball player’s success is on-base percentage. That scene
resonates with Andres Reiner, the CEO of Houston-based PROS. Reiner comes from a baseball background – his father is a scout in Venezuela for the Houston Astros – and he says “Moneyball” is a good example for other companies of how to use big data.
“In ‘Moneyball,’ it told them what behaviors led to success – it was getting on base,” Reiner explained. Data can be applied the same way in business. “The science tells you what attributes matter the most in your success,” Reiner said. “Is it just the number of companies in a territory or is it other behaviors? Data science can tell you.”
Reiner has not only seen the growth of big data and fast data – he’s had a hand in developing software to handle it. PROS – formerly known as Pros Pricing – uses a proprietary set of pricing, forecasting, and optimization engines to help clients cull through massive amounts of data and set prices that will build a company’s ROI and increase competitiveness and they do it primarily in the B2B sector.
The data can tell a company how to set prices, says Reiner, “because there’s a history of how you’ve sold to that customer, at what price point you’ve sold, and how it compares to the market price. Data science can begin to guide you with a price point where you can win business with high probability.”
Reiner likes to look at data science as the “GPS” of business. “We guide,” he said. “We don’t believe data science replaces human decisions, rather, we believe people need data to help them have confidence in the decisions they do make, so we provide that guidance.”
Airlines and More
The company started in 1985 with just one customer – Southwest Airlines. In fact, airlines were the focus of the company until about ten years ago, because of their need to process huge amounts of data quickly. But the complex data science associated with airlines translates to other industries as well, and now PROS services firms in chemicals and petroleum, aftermarket service parts, high-tech, paper and packaging, medical devices and more.
PROS counts among its customers such giants as BASF, Kimberly-Clark, Georgia Pacific, H-P, Hertz, Navistar, Mopar, and Johns Manville, to name just a few. It serves 80 percent of the world’s airlines – the bulk of them outside the U.S.
How to Get Started In B2B Analytics
For a company wanting to start using big data, Reiner suggests taking it slow and easy. “Start simple and find what areas you can begin with to use data to guide your business,” he says. A starting platform begins with small concepts and expands to more sophisticated measures in the future.
He says companies shouldn’t worry about doing something for their entire enterprise. “Find your smallest division and find the team that is craving a success and willing to adopt new trends – that’s where we see the best successes,” Reiner said. “Start simple in a simple business unit.”
Reiner says it’s hard to go from not using data science to thinking big and bringing in unstructured data. “I think the key is to begin with something simple, thinking about an end user experience,” he said. “Things like providing price guidance, or other products customers are buying – these are simple concepts. Just don’t do too much up front.”
How to Implement a Big Data Strategy
Companies just starting out with big data might easily be overwhelmed by the sheer volume of information out there, and unstructured data at that. Reiner says the key is having the right technologies to tie to transactional data. “You have to be able to tie everything back to your own transactions, in real time,” he said.
The data can determine the price point because it provides a history of how a company has sold to that customer, at what price point, and how it compares to the market price. “Data science can begin to guide you with a price point where you can win business with high probability,” Reiner asserted.
“Companies need to understand what data they have that’s operational and what external data they need to link to their operational data, then turn it back to distilling simple decisions,” he added. “A world of more analytics is not helping business, because companies are overwhelmed with the amount of data they do have.”
In fact, because of the volume of data, PROS is moving away from more reports and analytics. “The analytics tell you where there’s a problem, but it doesn’t tell you the solution,” said Reiner. “We mine data around product transactions, customer data, and then add external data sources, like weather or other elements.” From there, everything is distilled down to allow a salesperson to determine what a customer is willing to pay.
Internal Challenges of Adopting Business Analytics
The biggest challenge a company faces in using data well, said Reiner, is not trying to do it all up front and starting simple. “Start simple and find what areas you can begin with to use data to guide your business,” he advises. “A starting platform begins with small concepts and expands to a platform allowing you to go to more sophisticated measures in the future.”
He says a company moving into big data must bear in mind three things: the change management of people, the importance of good quality data, and starting small.
“You can’t underestimate the effects of change management in understanding people’s feelings,” Reiner said. “You’re not replacing their knowledge, but rather you’re expanding on their knowledge . . . all that knowledge continues to go to good use.”
People can be a challenge when a company decides to jump into big data, because they are leery of being replaced by technology. “I remember doing training for an energy company,” Reiner said, “and one of the pricers who had been doing his job for 15 years used the technology and said, ‘You don’t need me anymore.’ I remember saying, ‘We need you even more because we need you to focus more on strategy.’”
He did not have to spend his time creating spreadsheets and aggregating data, said Reiner. Instead, he was using that information to drive a better strategy. He could leverage his expertise with less focus on the tactical and more focus on the strategy.
“Business analytics will never replace human interaction and people,” mused Reiner. “People need better data to make better decisions – that’s what we provide. Companies should not think about having less people, it’s more how to focus those individuals on better strategy rather than mining the data.”
A manager’s experiences or “gut” feelings are still important, said Reiner, but data lets a manager support a gut decision. “If I’m thinking about where I should add sales reps, to what territories, data can guide the decision,” Reiner said.
What Will All Of This Do For My Company?
We give salespeople tools to negotiate with, said Reiner. When they deal with procurement groups, they’re often pushed by arguments that the competition is offering a lower price. “Many times, procurement is disconnected with the reality of the service you provide,” he added, “and this data helps the sales organization take a stance and say, ‘Yes, we may charge more, but we provide a lot more value.’ That’s key when you face competitive pressures.”
“The data also helps them see what other products they should be offering and what other products similar clients are buying,” he said. “If you provide value and say, ‘Customers like you are buying this product, and you may be interested,’ then the conversation moves to a new level.”
A company’s sales and marketing organizations can work together to use data to drive revenue and profitability. “Both organizations have a common strategic goal,” Reiner said. “So, the key is how to align them together.” For example, marketing mines CRM data, looking for lead generation. They must be able to measure impact of ad decisions. “Can I predict six months from now I’m going to have a problem and can the data tell me that six months from now we’re going to have a problem?” asked Reiner.
On the sales side, “If I manage client renewals, I want to understand if my customer buying behavior is changing and I want to be able to know in real time when it changes – is it that month or that week where their behavior changes with different volumes or different products?” Reiner suggested. “You need to be able to call a client quickly to understand what’s happening. It can take a long time to realize you no longer have a customer, or change might also mean there are economic issues for that customer.”
The Competitive Advantage
PROS’ core business is working with companies to set a price point for their products or services, and it uses a software program – the Pricing Revenue Optimization program – that Reiner took the lead in developing.
“Data is the first element in price point development,” he said. “You bring in your product and customer master data, then add the transactional data, then add the data science of the industry with an industry template, and that helps deliver the price guidance.”
The PRO platform can be applied to many industries, whether travel, B2B, parts, chemicals, or petroleum, Reiner said. “We can see up to an 80 percent price difference on a product SKU. That’s a tremendous difference from the lowest price somebody pays to the highest price somebody pays.” The goal, he said, is to make pricing consistent. “There will be differentiated pricing because you may have channel partners and you have different sized customers who buy big volume and some who buy small. What you want to see is a customer who buys a small volume paying near the top of range, and somebody buying the most product paying at the lower range. That’s usually not the case, so we work on narrowing that price corridor so you become more consistent.”
To determine the right price point, PROS uses ERP (Enterprise Resource Planning systems) and CRM (Customer Relationship Management) data, along with cost data not found in those two databases, and for some markets energy, currency and commodity data. But again, Reiner urges business to keep it simple. “Distill the data to the key things that drive your business,” he said.
“We have what we call ‘willingness to pay’ issues in this industry,” Reiner explained. “Sometimes we are willing to pay more. We show our customers that ‘willingness to pay’ factor.” The elasticity curve – the lower the price the more the volume – is not always correct, he said. Sometimes a product is mispriced and if the price goes up, there may be increased demand.
He cited a customer in the hospitality industry as a smart user of big data. “They really believe in having customers for life – their mentality and philosophy is the customer is first,” he said. “They utilize data so when the moment a customer uses their call center or enters the portal, they know who that customer is and give guidance to that client on offers. It’s called offer optimization.”
That company knows a customer’s name when they call, and knows what the customer likes. “It feels good,” Reiner said. “Too many companies act like commodities and the challenge is to figure out how you’re going to be different. One way is how your customers interact with you – how are you improving the experience?”
He said a recent Gartner report on big data and cloud computing says companies who invest more in big data, relative to their peers, can expect to outperform their peers by 20 percent in every available financial metric. “You have to differentiate yourself, and this is how you can do that,” he said.
And although PROS is all about pricing, it’s been hearing from customers that it’s having a bigger impact than just setting prices. PROS is moving away from pricing into new messaging around big data.
As PROS continues to evolve, Reiner says his job is to build strong teams to move the company into the future. “We innovate, and it’s because of the people,” he said. “My strength has been putting great teams together. Passion is important in business, along with work ethic – with them both you can achieve anything.”