find the perfect balance of profit, revenue and customer demand with price optimization
Pricing is one of the central decisions and a key to your business profitability. It should correlate with local customer preferences and your competition. That’s the simple and straightforward part.
What makes things a bit more complicated is consumer behavior. It is fragmented – and it varies over time and place. The optimal product-price combination for one is not optimal for another.
What’s more, the product range has exploded and the frequency of new launches has accelerated. This has led to more intensive competition. There is a lot to consider when you’re setting the prices.
Generate effective promotional strategies, price points, and tactics by category down to individual SKUs at scale
Compare pricing scenarios and enhance understanding between financial impacts, competition, customer perception and reactions
Apply pricing effects to improve forecasts, planning, execution and measurement of campaigns & promotions
How do you use price optimization?
Typically price optimization is used to optimize assortment pricing – that is setting optimal prices for a total assortment portfolio – or optimizing campaign pricing. In both cases you want to find answers to two questions: what categories are most price sensitive? And what SKUs have the strongest price elasticity?
Assortment price potential is based on the identification of non-elastic products, gross sales of non-elastic products and profit increase based on increased price.
Campaign price potential, on the other hand, is based on identifying price-elastic products, analyzing campaign sales, and estimating the average lift at optimal price levels for those elastic products. The profit increase is driven by higher sales volumes.
Case example
A discount retailer with over 200 stores wanted to improve their price-setting process. They assumed that they are selling certain products at too low prices whereas some others might be too expensive compared to the competition.
With price optimization the retailer gained an understanding of individual products’ price elasticities as well as competitor pricing.
As a result, the retailer could see which products had to be sold with reduced prices and which products’ pricing could be increased – despite the competitors’ actions.
Fast and nice is the pricing
The pricing optimization solution significantly increased the company’s understanding of the price elasticity of its product portfolio and how to anticipate the impact of price changes.
Price elasticity determines the optimal price
Price elasticity tells how the sales of a product changes as the price changes.
When price elasticity and price images are known, product and service prices can be set on an optimal level to maximize both customer traffic and campaign profit.
Targeted and profitable pricing involves monitoring competitor prices that together with optimization provide improved profitability even in the short term.
How AI-powered pricing optimization improves revenue and gross margin?
Read our blog and learn how a European DIY retailer achieved a 14.2% sales growth and a 23.9% margin increase through strategic pricing optimization.
