How To Use Price Optimization To Boost Total Revenue 4% & Avoid Leaving 10% Profit On The Table

Last summer, in their Hype Cycle for CRM Sales, 2012, Gartner information technology research and advisory company found that companies successfully implementing price optimization realized improvements of 2% to 4% of total revenue or more; the ROI of the price optimization investment was typically realized in less than two years; and that price analysis, price optimization, and price execution would experience transformational growth in two to five years. (Gartner estimated this market was $180M to $190M in 2010 -- and we know how dramatically things have increased since then). Another revenue intelligence company estimated that a one percent increase in product price could raise operating profit by as much as 8% to 11%.

Yet another analyst observed that: "Unaided by price optimization systems, retailers leave at least 10 percent profit on the table."

Here's what retail intelligence leader, Upstream Commerce, said in their blog post in June, 2012, regarding the future of price optimization and price optimization tools: Retail Intelligence of the Future: Will Retailers Lead Change Or Just Look In Their Rear View Mirror? 

* For 2011-2012, many retailers didn't yet do real-time competitive price and assortment tracking. They may have tracked their competitors' prices and assortment once a month or each quarter, manually, or used basic scraping tools, but they had to recognize that It was very difficult to manage pricing of thousands of products this way; and also difficult, if not impossible, to do eyeball analysis of competitors' prices and assortments.

* For 2012-2013, retail intelligence solutions will provide an important competitive edge for most retailers, who would use automated price tracking and comparison, and some assortment tracking; and that retail intelligence would be integrated with analytics and eCommerce platforms (such as Upstream Commerce has with Magento). 

* For 2013 and beyond, it will be impossible for retailers to do business without a full Retail Intelligence Suite, for price, assortment, promotions, industry benchmarking, product life cycle, automated rule-based price changes, and the ability to make recommendations and predictions.

And that has also turned out to be true.

To review: Pricing is the process of determining what a company will receive in exchange for its products… Price optimization is the process of determining the proper retail value of a consumer product or service. Both manufacturers and retail stores dedicate a massive amount of time towards price optimization to ensure that their products will sell quickly while still making a profit.

If the item is priced too high, it may not sell at all, while if the cost is reduced too much, the store will unnecessarily limit its buying power. Each of the manufacturers use a dynamic price optimization formula based on the overall demand for their product, their level of competition, and the cost of manufacturing their goods. Finding the perfect balance between profit and value is essentially what price optimization strives to do, and because the relative values of goods and services constantly change, this is a never-ending task for most businesses. (Wikipedia on price optimization). 

Bottom Line For Your Bottom Line:

“Companies that have not yet implemented a formal price optimization initiative, or that have relied on ad hoc analysis tools or internal spreadsheets should examine price optimization as one of the few investment areas that can impact revenue, margins and the customer experience," wrote a Gartner research director.

To get ahead -- and stay ahead -- in the ever-competitive world of ecommerce -- retail intelligence solutions are no longer optional, they're mandatory! Retailers using these tools will be experts in the competitive landscape, and will make the most well-informed, well-timed, most profitable business decisions possible.

Gilon 

 

 

 

 

 

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Gilon Miller, CMO

About Author

Gilon is a seasoned marketing, sales and business development executive with over 15 years of experience in the software and Internet business. He is the Founder and CEO of GuruShots. Previously, Gilon was the CMO of Upstream Commerce, VP of Marketing at iMDsoft and Director of Global Marketing at SAP. He earned an MBA at the MIT Sloan School of Management and a BS in Electrical Engineering from Tufts University.
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