Price Optimization Software Rating

Price optimization seeks to predict how customers will react to different prices set for a product using mathematical analysis. Determining this helps retailers understand what prices would be optimal for their products according to their pricing strategies and business goals, whether that be to increase sales, increase profit margins, etc. Traditionally speaking, price optimization and management were done manually, collecting external and internal data and making calculations for products using excel sheets and sometimes with the assistance of simple software.

However, conducting price optimization has become more complicated within the past few decades, and as a result, the software used to make these calculations has become more advanced as well. The first companies to utilize price optimization software typically had diverse product lines as well as broad target markets. Advanced software for price optimization is not exclusive to retail giants anymore, however – analysis shows that even prior to the 2008 recession, the global market experienced a rise in competition, which pushed companies to search for new business approaches.

This increased complexity and volatility in retail resulted in a gross drop in profits for manufacturers and distributors alike. As a result, more and more retailers of all sizes worldwide are beginning to integrate pricing optimization software into their pricing strategies to remain competitive in tough markets with unforgiving profit margins. Price optimization algorithms can be considered one of the most crucial areas to invest in for companies that are still relying on ad hoc analysis and spreadsheets for their pricing needs.

The pricing optimization software is a system aimed at increasing business profits by analyzing the market condition of dynamic prices and formulating an effective pricing strategy on this basis. This is a great alternative to traditional methods of price optimization, which consist of manual settlements.

The pricing optimization software is suitable for businesses of all sizes, from online clothing stores to supermarket chains. For this, a whole complex of pricing data is used, obtained as a result of monitoring the price range in the market, the range of products, and pricing conducted by competitors. Also taken into account are factors such as the behavioral mood of potential consumers, analysis of sales indicators during the campaign, changes in market conditions, and the economic situation in the country.

Thus, based on the data obtained and processed with pricing optimization software, retailers can set the optimal price for their product, the most favorable and attractive for consumers. The introduction of price optimization tools software allows you to develop an effective dynamic pricing strategy for promoting a product or service on the market and, as a result, helps to increase the company’s profits.

What is price optimization in the deeper term?

For most companies, there is still plenty of room for improvement in their pricing strategy.

That’s where pricing optimization methods come in. When you find the right pricing balance between what people are happy to pay and what your company can make money for, everything becomes much easier. Sales and marketing, profitability, and growth.

Price optimization is the process of analyzing your customer and market data to find the best possible price point for your product or service, meaning that you sell more products without sacrificing production costs. The goal of price optimization is to figure out the best price that will generate the most sales and success.

Successful price optimization is about finding the balance between price and profit. It’ll have a major impact on your sales, customer satisfaction, and profitability. The success of it can also affect your level of possible growth.

The process of optimizing pricing isn’t always easy. The marketing research analysis is crucial for understanding both your business and your customers. Pricing your products or services isn’t always straightforward, but it can be quite easy with the right tools and knowledge about the concepts of pricing.

Price optimization starts with a list of the information you’ll need to have. That includes things like:

• Customer survey data
• Demographic and psychographic data
• Historic sales data
• Operating costs
• Inventories
• Machine learning outputs
• Subscription lifetime value and churn data (for subscription business models)

Pricing optimization programs are similar to dynamic pricing strategies that other industries use, except dynamic pricing in other industries tends to fluctuate a lot more frequently than it does in the case of price optimization.

To price your product optimally you need to understand how consumers might react. Applying basic economic principles to pricing your product or service will make it easier for you to decide how much trying to charge.

The history of price optimization: the road to optimized prices ​

Since the beginning of commodity-money relations, the price has always been at the center of attention. Therefore, price optimization is not a new phenomenon, but a historical one. Humans have always been able to know the worth of an object based on how much a customer is willing to pay. One example where people were engaged in pricing is auctioning. Auctions were invented millennia ago and they’re still seen as interesting today even if they’re not used very often.

For a long time, many business owners have implemented fairly basic strategies like using markup on the case cost and forecasting to achieve their own KPIs.

It is only natural that sellers, as well as buyers, are unhappy when they have to sell goods at auction. The idea of posted prices was developed to eliminate this problem. These enabled a fair price to be agreed upon so more people can buy. This process streamlined the sales time, which maximized profit per sale.

Over technological time, trade evolved and expanded with the number of markets growing, leading to more variety and improved economic welfare. It should be noted that the pricing policy was based more on intuition, which was not always accurate.

As the number of pricing decisions continued to increase, retailers needed a more reliable and streamlined solution.

Example

For a company managing 1,000 products and making hundreds of thousands of decisions per season, it’s vital to have effective supply chain management. A large, multinational retailer with access to 30,000 products sold in 10 countries across 3 distribution channels and list prices which are constantly changing will make millions of pricing decisions a year.

One of the factors that go into a decision is price differentiation because it is specific to every customer. Many enterprises differentiate their offers and prices accordingly.

To make the most of your marketing, need to research differentiation strategies and prices. That way you can decide whether you want to offer pricing for certain customers or extend it across various product segments. Many factors go into the pricing of a financial product such as regulation, market practice, and the maturity of the pricing function. All these elements factor into what kind of financial decision is made.

At this point, the speed at which price determinants change only continues to increase. This means that industries were having to evolve as often and quickly as possible to stay relevant. Today’s market is constantly changing, which makes it difficult to lock down on prices. For example, the price you set yesterday may not be actual today.

With technology rapidly expanding, more opportunities arise to make informed decisions about pricing your products.

Three things you need to optimize for

Pricing strategy is all about finding that perfect balance between satisfying customers, being profitable, and managing demand. The customer is always right and as a business, we have to listen carefully so we can be sure to provide them with the best possible solution. Building a high-quality product can be a long and tiresome process, so some companies try to strike the right balance. When pricing their product or service, they consider two things: the starting price of their product or service and what the market is willing to pay. In addition, they take into account any discounts or promotions that the company might offer.

Starting prices

The starting price of your product is important as it tells customers upfront whether or not your product/service is worth their time. Before you offer any discounts, your product should be merchandised at the recommended retail price. For businesses that sell products and services which do not vary a lot over time, for example, food, it’s often best to start with the optimization of the price.

Discounted prices

In making sales, it is imperative to have information on how best to attract new customers and what is needed for this. Offering your product at a discount or with a freemium version can both be great strategies to bring in customers. Customers who sign up through freemium offerings cost, on average, only half as much to acquire. What makes discounted prices so effective is that they often work well with short-term products. Those would be in line with seasonal and changing trends, etc. This can be observed in the clothing industry, air travel, and tourism. This will allow businesses to get rid of excess inventory for the cost of their customer’s loyalty. The availability of various discounts, over time, must be considered when determining the profit contribution of a product.

Promotional prices

What promotions can you offer your customers to make them useful to you as well? It is worth answering the question: will the price reduction bring profit or is it better to keep the initial price? It is also necessary to analyze what kind of discount should be offered to the client. What is the typical length of time it takes for merchandise to sell at a given price? Pricing can be a powerful tool for boosting sales! For example, your company might want to change its prices to promote new products/promo bundles. Temporary price cuts are common in retailing as a short-term promotional measure. They’re aimed at creating the perception of scarcity and urgency, leading to an increase in sales. Promotional prices are a great way to expose customers to new products or bundles. This is true of many promotional tactics though – ‘Buy One, Get One Free is a popular one.

Why many companies fail at price optimization

To sum it all up, more companies don’t want to invest a lot of time and effort into optimizing their pricing decisions. To set correct estimates, customer research is required, which takes time and costs. Unfortunately, many companies only spend a few hours on their pricing strategy each year, which is not enough.

Often companies apply strategies that are based on guessing prices and using discounts without considering the core values of pricing. It would be more appropriate to develop a clear strategy for price optimization.

Guessing

Most companies underutilize the analytics or metrics they receive from customers. Instead, they mostly guess at the level of the optimal price. We need to be careful when using such approaches. Pricing is a complex and subtle subject, but even guessing at it can work to some extent. This may mean that your pricing policy is well thought out. Businesses must have a sound price optimization strategy for optimal revenue.

Misunderstanding tiers

Most companies struggle with deciding the right number of pricing tiers they should offer. Find out how to choose one here. It’s important to make sure that you have enough conversion points before you start adding extra tiers to your landing page. Too many or too few options in a product line will result in lower conversion rates. For example, as the number of tiers increases, people will buy less because there are more restrictions and it becomes increasingly difficult for people to find what they want.

Relying heavily on discounts

Discounting can sometimes cause more harm than good. This is because many companies use it incorrectly, on both the point of customer behavior and their own business. Yes, short-term discounts can help you with your initial goals, but in the long term, this could hurt your acquisition metrics and make customers less loyal to your product as a result. Discounted customers have a double-digit higher churn rate than their full-priced counterparts—either they’ve been trained to devalue the product, or they weren’t the right customer for our company in the first place.

Not pricing for value

To better optimize your prices, you can use value-based pricing. This pricing model considers both you, the seller, and your customer. For most companies, determining the price of their product is like a guessing game. But a value-based pricing model will help you know where you should set your prices so that different customers are willing to pay different amounts. Essentially, this maximizes revenue because the right people are buying your product at the best price for them. One issue that many business owners have to grapple with is figuring out what the price should be. It’s not easy.

Not localizing pricing

Localizing your pricing allows you to make a name for yourself in new territories. This is especially true when it comes to growing on a global scale. But this is something a lot of small business owners overlook because localization takes time and effort, which can get in the way of quickly developing your business. However, it’s an aspect that you should consider before moving your company overseas.

This is why so many companies don’t increase their prices largely- they’re afraid of the negative impacts that it will have on their business.

They choose the wrong value metric

Decide on a pricing strategy early on. Understand how you want the price to be aligned with the value your product provides. There has been a lot of research into pricing models, which leads to more and more companies changing their pricing algorithms. It’s important to consider the consequences of your decision before committing to new metrics. Make sure it is the best choice to conduct your business. It’s important to make sure that your pricing is clear and easy for you and your customers to understand. It should also make sense for both parties to decide on the price. Furthermore, you need to be able to measure this value and track it in your system, otherwise, you won’t be able to monetize the information.

How to optimize your pricing

Understanding your audience and where they’re willing to spend money allows you’ll to calculate which pricing strategy will work. Price optimization is about unraveling who your most profitable customers are and working with them to find an individualized experience that matches their needs. A deep understanding of your market is a vital prerequisite for success. For example, retail strategies will differ from the doctrines of large companies. You can use this knowledge to set your pricing, ensuring that you are placing a fair value on our products.

Get to know your customers

Think of pricing as an experiment— each business has different needs and goals. It’s essential to figure out the right number so that you make a healthy profit but are still competitive. Pricing decisions need both qualitative and quantitative data to guide them, like industry benchmarks, competitors’ prices, etc. Analytics is the answer to figuring out what your customers want and how much they will pay for it. This will help you shorten the demand cycle and make your bottom line grow.

Analyzing your data can give you actionable insights into the performance of your business. These insights may include things like what areas need improvement, your churn rates, and more. There are many different types of analytics software out there that make sense of all your metrics and turn them into insightful data. One solid example is Price Intelligently. This would be done by slicing and dicing your customer’s data to provide insights that could help improve your pricing.

Qualitative data obtained during communication with customers is important. Customer feedback is so important, and you’re never going to get a more accurate answer from a survey. That’s why a phone call can often be your best way to get feedback and stay ahead of what they need.

Quantify value

Once you’ve collected your customer data, it’s time to work out how valuable your product is to each customer. Having a clear picture of your business’s value metric is important not only for being able to analyze the effectiveness of marketing efforts but also because it demonstrates your ability to close sales. The indicator of value is how much you get from your product. Pricing a product appropriately is the difference between survival and thriving. Other popular indicators for SaaS businesses include how many seats are on the platform, how many files are hosted, how much bandwidth is being used, and more. Your success metric should be what the customers in the market want and can be quantified to constantly improve upon.

Analyze the data

You have done the research and identified the main features that customers like. Now let’s see if there are any similarities in the features, benefits, price points, and value metrics. The more important ones will come first. You’ll also discover the pricing tendencies of different markets, demographics, and personas which will help you determine what price will work best for them.

You’ve done your market research – now you need to know how to price your product or service competitively. Try using tiers or packages and you’ll see the benefits in your sales. Pricing tiers should cost that which you believe they are worth and align with the customer segments you are successfully targeting.

Adjust pricing and monitor

Even after you’ve set your prices, you still need to keep track of the changes in the market. Pricing needs to be a balance between what your competition charges and what value you provide.

Pricing is a continuous process. Get the pricing right and you’ll have a lot less to worry about. You can think back to the dart board example we did earlier. Pricing adjustment will help eliminate parts of the board. After the adjustments, you can focus on the good ideas for your store with this newly found customer insight.

To succeed and reach your target audience, you’ll have to collect user data and analyze changes in pricing strategy as they happen. One of the best ways is to make sure that you get early access to feedback for changes you make. Pricing is such an important factor in a business. Keep track to see if your prices are hitting the right balance so that you make more money and also keep customers happy. Ensure that it is ‘fair’. You should be able to find subtle changes that can affect your pricing. If things don’t work out, re-evaluate. But don’t be quick to switch and create a new subscriber base from scratch, since you might drive away from current ones.

Example #1: Pinegrow takes Brazil (eventually)

Pinegrow’s website builder software, which they sell in Brazil at the same price as in their home market, was seeing an issue with this.

By adding BRL as a currency and lowering the prices of their products to reflect the local economy, they saw a lot more customers.

The increase in incoming customers indirectly led to an upward trend in Pinegrow’s revenue. The BRL prices that Pinegrow used were about two-thirds lower than their initial USD equivalent. Far from harming their bottom line, they saw an increase of 177% in sales even with that heavy discount.

Maximizing conversion rates is vital in today’s business world. Customers differ vastly across cultures, backgrounds, and ages so knowing your customer and understanding their buying power is of utmost importance.

To start with, there are several things to consider when researching new markets to expand into. Let’s look at some key points:

• currencies used
• Disposable income
• Local pricing of competitors
• Your company’s size in that industry
• General demand for your product

Example #2: Tweakbit do some tweaking

Tweakbit can provide anti-virus software in an increasingly competitive market, but they might not have a lot of brand loyalty because they buy their software to solve a particular problem (most people don’t want viruses). This would set them apart as being very sensitive.

Tweakbit’s pricing is designed to address your needs. Tweakbit offers discounts both upfront and throughout the entire customer journey. These types of perks can alter your user’s perception of the software, helping convince them to pay a premium on what they would have paid without the benefits. In addition to this, they also run regular promo campaigns to make sure the customers’ pricing expectations are met.

The price or billing models you charge to customers should be thought through strategically, and researched so that you get the right model for every customer.

Example #3: Smile Software optimize for upgrades

Smile Software’s PDFPen has been updated with a focus on the user, following their success over the last few years.

Firstly, we contacted our customers via email to offer them a PDFPen promotional code. This means that within the app, a user’s existing license was automatically verified and upgraded to the latest version.

The people who purchased the latest version in January are eligible for a free upgrade. For those who have purchased Smile Software within the past year, they recently introduced a tiered system.

This tiered system was designed to help customers evaluate the additional costs that come with upgrading from basic ($50) or prop ($30). Customers that bought this plan said it helped with understanding “the cost of upgrading from their previous tier.”

Common pricing strategies

Pricing strategies vary and are usually chosen based on what industry you’re in and how your product is priced. They have both pros and cons. Now that you’ve decided on your strategy, you can begin the process of determining the prices.

Below are some price strategies to get you started.

Penetration pricing

This is a rather aggressive strategy. According to it, the product is sold at low prices on the market. This strategy aims to disrupt the competition by creating lower prices that are pulling customers away.

Blockbuster and Redbox are just examples of this. While Blockbuster was still offering DVDs for as cheap as $5, Redbox was placing their automated rental boxes outside of many stores. You can rent movies from Redbox for $1 a day, or $1 per day for late fees. Blockbuster is long gone, but Redbox is hanging on– until streaming services bring it to its end.

Competitive Pricing

When you are competing with others, to be the best, you must understand the prices of your competitors so that you can reach your goals. You analyzed the pricing approach of your competitors and set the same prices for your products. On the other hand, you can set higher or lower prices than what your competitors are setting.

To ensure that your profit margins are sustainable given your pricing, you need to make your production and overhead as low as possible. Grocery stores often offer lower prices in terms of packaging for their store-brand products to compete with brand-name items.

If you match the competition’s prices, your product will have to be different from those products on offer. Fuel often has the same price, so gas stations must offer something else to attract customers—such as a clean restroom, or cheap car wash coupons.

Increasing your pricing will give you an edge over your competition only if you’re offering more value, higher quality, or additional features. Apple demonstrates this with their iPhone cell phones. They charge a slight premium, but they have features and benefits that make it worth the slightly higher price.

Price skimming

With price skimming, you typically launch your product at a higher price to generate more revenue early on. However, the price “skims” down with time. As the novelty of the product wears off, it becomes less expensive.

This is very true in tech products. When DVD players were new to the market they could cost up to $1000, but with technological innovations, now you can get one for as little as $29.99. The prices of DVD players have steadily dropped over time, as technology has improved and become more affordable.

Value-based pricing

Companies use this strategy to set their prices based on what customers perceive the value of the product to be. If you price your products based on what customers believe they’re worth, then the more expensive a customer thinks the product is, the higher of a price tag he’ll attach to it.

The fashion industry is heavily influenced by value-based pricing. A designer whose handbags are regularly carried by celebrities will be perceived as having a higher-quality product.

Market-based pricing

Market-based pricing is more dependent on what the product has to offer compared to other items in the market. You’re pricing your product at or near the prices of your competitors. This is often a characteristic of the market in items like vehicles, raw materials, and other “necessities”.

Conclusion

It’s a shame that not enough companies spend time on pricing. Not optimizing your prices can lead you to problems and missed opportunities, which can in turn bring down your revenue.

It doesn’t matter what you’re selling—SaaS software, groceries, electronics, handbags, or even industrial tools. When you optimize your pricing, it has such a big impact on your business that it’s something you can’t afford to ignore. With the right tools on your end, the process of optimizing your pricing doesn’t have to be difficult.

Price optimization is an element of trade that has been around since the beginning, but we don’t have to do it the way our ancestors did because thanks to technology, it’s much more sophisticated and getting better.

Smart pricing is important to ensure a seller is priced competitively and can offer the best possible price for their products, which customers may alter freely. Price optimization research helps retailers understand how customers react to different pricing strategies to offer the best prices possible.

Thanks to machine learning, businesses have the power to identify key pricing-related variables. These include purchase histories, season, inventory, and competitors’ pricing. They can ensure the best prices and offers which are tailored to your KPIs. Because of this many retailers are embracing machine learning as part of their analysis and price optimization.