10 Commandments Of Price Optimization Retailers Don’t Want Their Competitors To Know

Vince Lombardi, inveterate coach of the Green Bay Packers was very tough -- and very successful. He had a lot of wise sayings. The most important thing he ever told his teams was: “Winning is not a sometime thing, it is an all the time thing. You don’t do things right once in a while…you do them right all the time.” So it is with retail pricing success and profit. Pricing isn't everything. PRICING IS THE ONLY THING. Here are 10 Commandments of Price Optimization that retailers of any size must address if they expect success and profit:  

#1: Thou Shalt Know Thy Costs.

#2: Thou Shalt Not Price By Cost Alone.

#3: Thou Shalt Not Confuse Value With Price. Costs, which are real vs customers’ perceptions of value are two completely different things.

#4: Thou Shalt Not Depend On Marketplace Prices For Your Pricing. 

By resorting to “marketplace pricing,” companies accept the commoditization of their product or service, which is the opposite of differentiating their products or services so as to create additional value for specific market segments.

#5: Thou Shalt Not Use The Same Formula For Pricing All Of Your Product Lines. 

All product lines within the same company are not equal, so never try to achieve identical profit margins for disparate product lines. Perhaps thou shalt not use any formula at all.  For any single product, profit is optimized when the price reflects the customer’s willingness to pay.

#6: Thou Shalt Be Aware Of Customer Segmentation And Use Price Differentiation.

Customer segments are differentiated by the customers’ different requirements for your product. Your dynamic pricing retail strategy should include options that tailor your product, packaging, delivery options, marketing message and your pricing structure to particular customer segments in order to capture the additional value created for these segments.

#7: Thou Shalt Change Prices As Often As Necessary.

In today's fast-paced, transparent marketplace, there's evermore need to change and react in real-time.

#8: Thou Shalt Be Aware Of Newton's Third Principle Of Physics: 

For every action, there is an equal and opposite reaction. When it comes to pricing, anticipate your competitors' reactions, potential problems, and don't get sucked into a price war. Costly price wars can destroy the profitability of an entire industry.

#9: Thou Shalt Not Short-Change Thy Pricing Process.

Pricing is not simplistic nor should it be a last-minute decision. Pricing right takes an appropriate amount of time and research, as well as sound pricing strategy and the determination to do things right.

#10: Thou Shalt Know Who Thy Customer Is. 

If 80 percent of a company’s profits generally come from 20 percent of its customers, do you know who your most profitable customers are? Failure to identify and focus on these 20 percent leave companies undefended against wilier competitors -- and leaving yourself with lower revenue and lower profits in general makes no sense.

Bottom Line For Your Bottom Line:

Rigorous price optimization has emerged as an important first-line source of competitive advantage and increased profitability for retailers. I venture to say that price optimization strategy is even more important than the management of costs and the growth of sales volume. The only way to compete in today's marketplace is to use proper, sophisticated pricing intelligence solutions that give you timelines, analytics, benchmarks, and predictive capabilities.

Based on 10 Common Pricing Mistakes: Pittsburgh TEQ®.      

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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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