Price Optimization is currently being applied in retailing, especially by the largest companies, i.e. WalMart, Target, Safeway etc.
Price Optimization (also referred to as Revenue Management), has been around for awhile, but it’s been in the last 5-6 years that
retailers have made some major investments into its use. Significant increases in both sales and profitability are attributed
to this technology.
The basic idea is simple, really; consumers react to changes in price and to price relationships between competing and complimentary items.
Retailers collect lots of data at the Point of Sale, and with that data some statistical modeling
can be applied in order to analyze and make some pretty accurate inferences about the effect prices and promotions will have on sales.
Retailers must price with multiple objectives in mind and among them are profitability and competitiveness. Category Management
is a way to segment a store's items into groups or mini businesses. One Category Management principle is that each item
plays an individual role toward meeting the overall category's objective. While each item is priced individually, each price
should strategically serve the category's objective. In Grocery for example, retail prices should be set with a number of factors in mind:
With thousands of items in a retail store, managing prices in the face of constantly changing costs, competititor prices etc. is a daunting task.
We have applied our
Price Optimization software solution for just this purpose.
Our retail clients are able to analyze, optimize and manage their prices with local customization. Our software applies true optimization methods
in solving for prices that achieve the retailer's multiple objectives.