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Price Optimization in Retail

Main Solutions:

  • Pricing Optimization
  • Competitive Intelligence
  • Retail Management Systems
  • Competitive Data Analysis
  • Price Tracking
  • Dynamic Pricing
  • Price Intelligence

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 business goals, whether that be to increase sales, increase profit margins, etc. Traditionally speaking, price optimization was done manually, collecting 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 price optimization software into their pricing strategy to remain competitive in tough markets with unforgiving profit margins. Price optimization algorithms can be considered as 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.

Price Optimization Software

The process of price optimization starts with price monitoring. To be able to make an informed pricing decision, you need to track competitors’ data – prices, discounts, promotions, etc. Consolidation of such a massive amount of data used to be a complex but achievable task. With markets witnessing exponential increase in the amounts of information, however, manual price monitoring is increasingly difficult and ineffective. AI-powered solutions alleviate the burden of big data, providing retailers with large amounts of high quality data delivered in a timely manner, saving time and money in the process.

Some external price tracking providers are taking their software a step further, and offer price recommendations directly from the external pricing tool itself, centralizing the price optimization process into an all-in-one solution. Despite how simple it may sound, these advanced price optimization solutions are still highly customizable and suitable for businesses of all sizes. In other words, they may be an all-in-one solution, but they are far from a “one size fits all” solution.

Choosing the Right Price Optimization Software

The amount of price optimization tools on the market is increasing, and it’s both good and bad news. The competition encourages innovation, but also makes choosing the right price optimization software for your company’s needs more complicated. That being said, there are a few key things to look out for when searching for the right price optimization software.

First of all, it’s necessary make sure that information collected by the price monitoring software is of the best quality. When looking at the data collected by the software in question, pay special attention to the following factors:

  • accuracy rate
  • depth of comparisons
  • number of product page scans
  • depth of matches

Another issue worth considering is that some providers deliver pricing data at specific times of the day, which may be inconvenient when setting up your own scanning schedule. Additionally, this could mean that you receive data at the same time as your competitors, which may take away the competitive edge that this data could potentially give you. It is better to choose a software that enables you to set up your own scanning schedule, so you can have data delivered to you when your business needs it most.

To ensure efficient utilization of the software, it is a good idea to take a look at the interface which should be user-unfriendly and practical for data processing. The software should be easy to use and transparent, providing deviation alerts so you can respond to market volatility as quickly as possible.

The provider must be capable to ensure competitive and matching data of a certain quality, stated in a Service Level Agreement. Furthermore, the price optimization software should provide you with MAP violation alerts so you can protect your brand image efficiently.

Lastly, you should consider what exactly the software is monitoring. There are a few basic things that a good price optimization software should monitor:

  1. Company positioning on the market. Are you within the market pricing range? Which competitors are affecting your sales?
  2. Your competitors’ promotion activities. Does the software track promotions, allowing you to optimize your own?
  3. Product availability. Are you alerted when rival companies are out of stock of a certain product?

With this ground covered, pricing optimization becomes clear-cut, fast, efficient and easy to understand.

The Profit Potential in Price Optimization

Retailers are finally starting to recognize price optimization for its profit potential. It allows them to set right prices based on solid data, increasing revenue as a result. Recent reports show that many major retailers were able to increase their profits by the merit of improved inventory management without major markdowns.

Price optimization helps to improve inventory management, reduce markdowns and gain higher gross margins. Having the right software supporting your price optimization process is the secret to selling products at optimal sales levels and maximizing profit. Regardless of the price optimization model your company uses to determine prices, AI-powered pricing tools can provide your company with improved results.