Price optimization is the practice of analyzing data from customers and the market to find the most effective price point for a product or service. The optimum price for a product or service does three things –
- Maximizes profits
- Elevates customer satisfaction
- Boosts sales.
The optimum price in retail is determined by the following factors –
- Cost of business operations and manufacturing resources
- Market demand
- Level of competition.
How price optimization and management software?
Price Optimisation Software employs sophisticated machine learning to calculate how demand varies at different price levels. The resulting data is then analyzed and combined with real-time information on costs, stock levels, and company goals to determine the perfect price.
The price optimization software is also powered by predictive analytics that analyses past and present data on customer behavior and market trends to predict future behavior. Thus, helping brands to take better decision on pricing,
Robust pricing software usually analyses the following determinant to find the optimum price of a product –
· Customer survey data
· Product utility and demand in the market
· Demographic and psychographic data
· Historic sales data
· Operation costs
· Machine learning outputs
· Extent of competition
· Pricing objectives
Common Price Optimization Challenges faces by Retailers
We are witnessing a rapid shift from legacy software and manual intervention to sophisticated price optimization software. This revolution is stemming from the following challenges that businesses without price optimization software face –
- Demand elasticity varies with competitor’s prices, macroeconomic variables, pricing policies, and customer psyche. Thus, making it extremely difficult to calculate demand elasticity accurately.
- Businesses cannot establish competitive pricing without an accurate matching procedure. The matching procedure aims to compare the business’s product prices with competitor offerings to find a reliable association or product overlap to compare. And, this process needs to be repeated with multiple competitors. It is close to impossible to do this accurately without the aid of software, especially today when the retail industry is brimming with competitors.
- Analyzing enormous data volumes and implementing the resulting decisions through multi-layered market strategies is an extremely complex task that cannot be fulfilled without price optimization software.
- Prices change much quicker in a retail business environment than other static businesses, which has been a huge challenge for ages, especially for small-scale retailers. A price optimization software makes it possible for retailers to get real-time insights into the changing values. Thus, helping them update their pricing to stay afloat in the competition.
Benefits of Price Optimization for the Retail Industry
Drive higher ROI
It takes very little time for retailers to see an improvement in sales and profits with the implementation of price optimization software. Such robust technology can go through enormous pools of data within minutes to bring you valuable insights that impact revenue instantly.
Eliminate the risks of human error by minimizing human intervention. Employ price optimization solution to react to market trends in real-time, maximizing potential sales or profits.
Predict customer behavior
Predictive analytics that fuel price optimization software can assess past and present data to detect behavioral patterns of customers at different pricing and market situations. You can tailor and adjust the pricing of your product according to not only retain customers but also attract new customers by elevating customer satisfaction.