Why That Price Exists: Big Data’s Invisible Hand

Why does Amazon change its prices hundreds of times a day? The answer lies in big data, the invisible engine behind modern pricing. These prices aren’t just randomly decided, but the result of millions of gigabytes of data. This data is called big data.

What is Big Data?

There are several factors that make big data unique, including:

• Volume: The world generates around 400 million terabytes of data daily. To highlight the scale of this, more data is created every second than the entire internet 20 years ago. With so much data, companies have the opportunity to use it for more successful pricing strategies

• Velocity: It’s not just how much data exists, but how fast it’s created. Speed gives companies the edge to act before competitors do.

• Variety: Not all data is a bunch of numbers. Other varieties include images, GPS signals, and social media posts. With such a wide variety of different data types, companies from all sectors can use it to optimize profits and costs.

  

Even as big data becomes more common, some still use outdated methods of decision making. On the contrary, almost all companies that use big data to influence business decisions have seen major benefits. One study finds a 5% increase in productivity and 6% increase in profitability of companies using big data compared to their competitors. This small edge only grows as the costs for computing, storing, and processing information become cheaper.

How companies can transition to using big data

There are five management challenges companies face while transitioning from HiPPO(the highest-paid person’s opinion) to big data-driven algorithms. While difficult, a successful shift would result in a larger competitive advantage in the increasingly growing online industry.

1. Leadership

Big data doesn't replace human insight. Companies still need leaders who understand markets, can persuade teams to embrace data, and balance the needs of customers, employees, and stakeholders.

2. Talent management

Data is cheap—talent isn’t. Companies need skilled professionals, like data scientists, who can interpret data and turn it into action.

3. Technology

Although technology is more affordable than ever, companies still need reliable tools to collect, store, and analyze data at scale.

4. Decision making

Data must be directed to the right people. Teams need both access to relevant data and the skills to make informed, data-driven decisions.

5. Company culture

Data-driven companies ask, “What do we know?”—not just “What do we think?” Organizations must move beyond HiPPO thinking and embrace decisions backed by evidence, not instinct.

Conclusion

As more and more businesses move online, an influx of data is being generated, leading to big data. This data differs from regular data due to its volume, velocity, and variety. Companies that use big data to drive decisions find themselves beating out their competitors; however, transitions require stopping HiPPO decision-making. By having effective leadership, talent management to analyze the data, technology to store it, decision-making to implement it, and company culture to truly embrace big data, companies can stay ahead. In the data-driven era, companies that adapt will lead—those that don’t may not survive.

Works Cited

McAfee, A., & Brynjolfsson, E. (2012, October). Big data: The management revolution. Harvard Business Review. https://hbr.org/2012/10/big-data-the-management-revolution