Strategy&: Demand analytics boosts commercial performance

15 October 2014

Companies that have best practice demand analytics in place demonstrate better commercial performance levels than competitors, concludes a new joint research study from Strategy& and INSEAD. On average, leaders in demand analytics capabilities perform a multiple of 2.6x better on sales growth and even 8.5x on shareholder growth. The key message for executives is evident: embrace analytics or miss the boat.

A few months ago Strategy& and INSEAD decided to join forces to study the impact of demand analytics on financial performance. Led by Strategy& partner James Walker and INSEAD eLab Executive Director Joerg Niessing, the research team analysed the financial value of demand-side drivers of revenue, such as pricing, promotion, advertising, customer analytics, and e-commerce, as well as digital engagement with brands. Roughly 500 executives – INSEAD alumni – in commercial leadership roles across multiple geographies, industries, and businesses of different sizes participated in the research.

Impact of Demand Analytics

The findings reveal that the commercial value of demand analytics is substantial: 70% of the companies who are significantly investing on a yearly basis to develop their capabilities are seeing considerable impact, with 26% saying it helped to turn around a business and improve profitability. Additionally, 84% of the early adopters reported that they better understood what drives demand in their business and saw improved profitability. “Our research finds a clear positive correlation – companies who are taking the time to understand and invest in their Demand Analytics capabilities are clearly seeing greater commercial performance,” explains co-author Walker.

The researchers also asked executives to what extent demand analytics influences four key financial metrics. On average, leaders in demand analytics capabilities outpace peers by 2 - 3 times on sales, margin and profit growth, and even more than 8 times on total shareholder return.

Demand Analytics and Performance

Best practices
Given the clear benefits of demand analytics, Strategy& and INSEAD subsequently studied the characteristics that distinguish leaders from laggards, showing that the key to success lies not in IT but in people and structure. “We found that investing in people and processes seems to matter more than investing in tools or technology - which is where companies often first look to spend their development budget,” says Walker. Other key features of leaders include a clear link with strategic goals and the deployment of distinct enablers, such as data availability, creating clear processes for applying analytics, expertise, and focused analytics resources.

From a capability perspective the difference between leaders from laggards across the main category’s is relatively similar, with Consumer Analytics overall the most popular tool, while Digital- and Marketing Analytics reveal the largest performance gap between the two groups of companies.

Demand Analytics Categories

Embrace or miss the boat
For executives, the findings underline the importance of demand analytics to the business, says co-author Niessing. “Companies are facing three major trends – big data, customer-centricity and digitization. Demand Analytics sits right at the centre of these trends. Our message to companies is that if you don’t embrace the opportunities now you have already lost the race.”

See the report ‘The Demand Analytics Premium’ for more key findings and results.