Tuesday, September 3, 2013

Riding the Analytics Horse to Profitability

…..or Following it With a Shovel?

By Scott Sanders - President, Integrated Insight

The ability to efficiently and effectively execute can differentiate a company from others, but so can analytics.  The cost to store and manipulate data is no longer cost prohibitive making analytics a potential competitive advantage for everyone.   Borrowing a quote from Rob Neyer, formerly with ESPN and now the National Baseball Editor for SB Nation, “In business, as in baseball, the question isn’t whether or not you’ll jump into analytics; the question is when.  Do you want to ride the analytics horse to profitability…or follow it with a shovel?”

Companies today have the ability to drive competitive strategies by integrating data-driven insights and analytics to make better business decisions and optimize business processes.  The power of competing on analytics is well documented:

1)   5% to 10% net income gains from a 1% increase in price realization
2) 2% to 10% revenue gain from revenue management science.
3) 10% to 30% increase in logistics efficiencies.
4) 10% to 15% increase in product line profits from product enancements or refinements.

My favorite time of the year is finally here – college football season - and in Florida that hopefully comes with a little cooler weather.   When I asked my sixteen year old son what he thought about analytic based decision making in sports he told me sports is BIG business ”… but it is simple dad.  With the right talent and a little luck you can win and winning sells tickets.”    While there is a lot of truth to what he says, sporting franchises have begun to embrace analytics to help drive profits.  Attendance has been on the decline due to a number of factors and franchises are leveraging data to extract the most value they can from their current customer base.   They know that a fan’s willingness to pay is different depending on who the team is playing.  Wins and losses matter and seeing franchise players can command a premium.  They know that suites can drive value.   They also have seen that the day of week influences demand and so can weather especially if the stadium is outdoors.  They are developing their data playbook, understanding the devil is in the details and fact based decisions help determine risk and benefits.

Given the secondary market for sports events tickets, understanding market pricing is paramount.   Many franchises are leveraging data and systems to move from variable to dynamic pricing and the results are promising, with both attendance increases and rate improvement.  Analytically approaching pricing based on demand has resulted in 30% increases in revenue in high demand situations and 5% to 10% increases in low demand situations1.  To put that into context, the Saint Louis Cardinals reported net revenues (revenues net of stadium revenues used to pay debt) of ~$239M and earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled ~$20M in 2012.  Gate receipts accounted for $108M in revenue.  At this level of revenue and EBITDA, assuming St Louis achieved low end of the range improvements earnings would improve by $5M to $10M or 25% to 50%.   Talk about happy owners or shareholders!

As I watched a replay of last year’s University of Florida and Florida State University football game this week it is clear.  Data insights and analytics are king, not only in optimizing ticket sales but winning football games.   The Seminoles have 3rd and goal on the Gators 2 yard line.    Understanding the probabilities of scoring when the ball is run up the middle verses the quarterback faking a hand-off and then running to the outside, could be the difference between winning and losing.  And according to my son WINNING games sells tickets – not to mention announcers would be so much smarter.

Smart decision making is key to competing in today’s marketplace.  Getting on the analytical horse can help put you at the top of your game.

1Forbes, Dynamic Pricing – The Future of Ticket Pricing in Sports; 1/6/2012

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