5 Advantages of Retail Price Optimization
Price optimization is at the root of the force needed for profit generation in retail. The backbone of retail pricing analytics is science, which is used to price items correctly without the need to discount them.
Want to know a secret?
Discounts aren’t working anymore.
The numbers of Nielsen Homescan, regardless of which channel, showed the following after 52 weeks, the last day being October 8th, 2016: “spend on offer” for brands such as FMCG went down 40% from being 42% in 2015 and 44% the year before.
This is only one of many brands that follows suit. Zara is also notorious for their lack of advertising. However, their shelves are re-stocked as fast as in a couple of weeks from when the items were first put out. Therefore, they just focus on producing what consumers want, while using what they save on advertising to pay the higher rates of work in Spain, which is another crucial aspect of the brand.
Picture this! Their sales don’t depend on discounts. With proper forecasts, they’re able to make a supply chain that will be the most beneficial to the business.
Additionally, it’s easy to accurately manage inventory as well as get larger gross margins, granted the proper forecast is made well before the time of occurrence.
But that’s not all.
How can price optimization help a retail business?
Retail price optimization models let businesses completely take advantage of what shoppers aren’t opposed to spending by knowing both when and how they spend.
With the proper analysis of the manner in which consumers spend, businesses are able to make the most revenue in each situation.
Looking at how an item did based on its previous time on the market is no longer useful since there are a number of factors that influence it today. A few of them include:
- The number of items
- The complexity of items
- The fact that buyers are more aware of prices
Therefore, let’s take a look at how retail business can use price optimization to their benefit.
The advantages of retail price optimization
1. Reap immediate financial benefits
Solutions for retail price optimizations provide opportunities to concentrate on various goals, whether it be margin or the amount of sales conversions, etc. For instance, with optimized prices, sales in a specific area aren’t as big anymore, yet the margin as a whole has gone up.
In fact, the Chief executive officer at Michael Kors Holding LTD claims that buyers no longer care about the price as much as they do the item itself. This is backed up by the fact that both their Mercer handbags and smartwatches were all sold at their initial price, thus making them as profitable as they can be.
Therefore, if Michael Kors can do it, then so can you.
2. Working in parallel with categories
With the help of both planning the optimization of prices, the prices of the methods will be allocated to specific pricing strategies and additionally, they’ll be put to work automatically. Therefore, both consistency and cohesion are guaranteed for the pricing strategy which helps with the management of the entire category development.
This is also highly beneficial to the category manager since it’ll ease up and simplify their incredibly complex work of dealing with all of the categories.
Solutions for retail price optimizations help automate the entire optimization process. This helps remove the need for any manual work, thus reducing the possibility of any human-made errors from occurring. Therefore, incorrect predictions won’t be made so optimization won’t negatively influence business in any way shape or form.
There’s no need to make random predictions and hope for the best. With the data that businesses can receive today, they can adjust their prices automatically whenever a change may occur, across all channels.
Do you wonder why Amazon is the giant that it is today? Well, it doesn’t shy away from price changes! In fact, they adjust the prices millions of times a day, and they do so with a compelling price optimization software.
4. Guarantee consistency
There’s no longer the need to worry about whether or not prices are consistent when using retail pricing analytics. Past mistakes came from inconsistencies with the units used or the pricing for similar, yet different items due to features such as size or color. As a result, businesses can depend on the data to always be correct and relevant.
5. Speeds up how quickly decisions are made
There’s an increase in the rate in which decisions are made due to automation, which provides reviews and comparisons with rivals very often.
So, how does it work exactly?
Let’s take a look at how Competera, a price intelligence solution, optimizes prices with their platform:
- First data is both gathered as well as processed in order to make your prices competitive and then the information analyzed from your own business is used to figure out the cost. You can learn more about these strategies here.
The data received is qualitative and returned very quickly. It’s also received promptly.
- Through data analysis, the raw information is turned into quality data that is actually used through any, for example, discrepancies that may have occurred. Their user-friendly interface then allows for easy decision making through valuable visuals.
- After the data analysis, a retailer can begin to make their strategies and goals. For each segment, they start item segmentation to figure out how willing consumers are to pay in order to adjust prices. Their platform helps predict the result of any pricing choices they make, and can even try them out beforehand to figure out which route would be the most optimal.
- Then the platform automates the decision process and also creates the method for changes to occur automatically based on any changes in the market. It also sends out notifications when any such shift occurs.
- Finally, outcomes are more predictable now that everything has been tried, adjusted, and perfected, therefore the tool knows how various changes influence the company, and it can now predict accurately when the next change could potentially happen. This is accomplished due to the science, machine learning, as well as price simulation that is at the platform’s core.
As you can see, with robust price optimization technology, businesses can reap immediate financial benefits, work side by side with numerous categories, automate processes to ease up the workload and ensure accuracy, guarantee consistency of the data collected, as well as speed up the decision making process. Therefore, there’s no other direction to go than up should you choose to go the price optimization route. Success is just around the corner.