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Price Optimization Software

How Retailers Can Use Price Optimization Software to Boost Profits

If you're ready to boost your profits using price optimization software, you'll want to read the following: But first, picture a consumer shopping in a brick and mortar store. While she is checking out an item, a store employee comes by, rips off the price tag -- and replaces it with a different one. As outlandish as this may sound, such behavior, called price elasticity is actually a common practice in ecommerce.

This example demonstrates the impact that pricing intelligence tools can have on your business’ performance. Tools like price optimization software help you monitor and track your competitors' prices and enable you to better understand the market so you can make educated decisions regarding your own pricing strategy.

What is Pricing Optimization in Ecommerce?

Price optimization is a method applied (usually through the use of software) to present the optimal price for a product in various channels to a potential shopper. This, of course, is carried out in order to maximize revenue.

The price that is presented to the shopper is achieved through the use of competitive pricing analytics, a component of the software that examines and compares the prices of different products to the competitor’s same product prices, and then deduces the optimal price for YOU.

Optimal price is also determined by the use of predictive pricing, which takes into account such factors as historical behavior, trends, market demand and supply availability.

Lastly, the use of software allows for dynamic pricing, which means that the price of a specific product or service is adjusted accordingly to the data shown by the software based on rules that you set in the system.
Such data includes:
  • Competitors’ prices (of identical or similar product)
  • Market demand
  • Historical behavior
  • Availability of product in the market
  • Retailer’s own inventory
  • Seasonality
  • Time of day

Why Dynamic Pricing Is Important for Online Retailers

Using dynamic pricing methodologies in today’s competitive market is important for online retailers for three main reasons:

1. Online Shoppers are Comparing Prices

These days, a vast majority of shoppers are turning to the web for their shopping needs -- and most online shoppers are comparing prices before buying something. Even if the shopper plans to make the purchase in a brick-and-mortar shop, they will conduct online research to find out what products are available in the category of interest, how much they cost, and compare prices between retailers.

2. Smart Pricing Builds Customer Loyalty

The second reason for using dynamic pricing methodologies is that smart pricing builds customer loyalty. If a shopper finds a product she was looking for, at what she believes is an agreeable price, she is more likely to return the next time she’s looking for a different product in the same category. An agreeable price promotes a sense of trust. Since a brand that prices its products in a reasonable manner is sending a message of fairness, the shopper doesn’t feel she’s being taken advantage of.

3. Competitors are Using Price Optimization Solutions

The last, and most obvious, reason online retailers should apply dynamic pricing to their pricing strategy is that their competitors are also using price optimization software tools. The fierce competition in ecommerce requires online businesses to utilize the latest technological tools, or they will find it extremely difficult to stay competitive and achieve a sustainable revenue for their business.

What Dynamic Price Optimization Allows Retailers to Do

  • Transform valuable data into actionable insights
  • Use accurate information to make pricing decisions
  • Predict market trends and online shoppers’ needs
  • Manage inventory more efficiently and effectively
  • Optimize prices in real time for higher margins
  • Understand product lifetime value better
  • Enjoy automatic price adjustments
  • Manage promotions and markdowns better
  • Ensure pricing consistency across the various channels
  • Make shoppers feel you deliver real value
  • Have your own business goals in mind and act accordingly

The 3 Main Components of Pricing Optimization Software:

Predictive Pricing

Predictive pricing, using predictive analytics, enables retailers to be more proactive, allowing them to anticipate the outcome of the pricing (and to some extent, marketing efforts) based on real data, rather than on ‘gut feeling’ or ‘understanding of the market’. An advanced predictive pricing tool uses patterns found in historical data, together with product sale and conversion information, to reach actionable insights and recommendations regarding pricing. The outcome can be used, not only for realizing the optimal price of a product, but also to improve resource decisions, to streamline supply chains, to elevate the shopping experience itself on the retailer’s ecommerce website, and to create goals for increased profitability. The most sophisticated form of predictive analytics, such as the one developed and offered by Upstream Commerce, doesn’t stop at presenting insights gathered from the data, but also suggests pricing options that are optimized to benefit the retailer’s margin levels.

Dynamic Pricing

Dynamic pricing is a the practice of continuously adjusting a product’s price based on real-time market ‘movements’ of supply and demand, as well as internal and external business metrics. This doesn't mean that the retailer gives up control of the pricing strategy of his or her business. On the contrary, smart dynamic pricing software allows the retailer to set pricing rules according to which the automatic pricer will conform. For example, the retailer can set the minimum and maximum prices for a product, either generally (rules that apply at all times) or according to specific supply and demand, time of day, seasonality and other dimensions. Advanced dynamic pricing takes into account the recommendations of the predictive analytics component of the software, and, working within the constraints of the pricing rules, automatically adjusts the price levels in real time.

Competitive Pricing Analytics

Competitive pricing analysis is an algorithm that tracks and analyzes competitors’ prices, product assortment and promotional data. The algorithm interprets market trends by comparing competitors’ pricing strategies and decisions to identify pricing opportunities so the retailer can present his or her optimal price. An individual customer’s optimal price is the price they would be willing to pay if they understood the product’s value proposition and how it answers their needs. The competitive pricing analysis algorithm ‘feeds’ both of the other components of a price optimization solution – the predictive pricing and the dynamic pricer. Together, the three components enable monitoring and analyzing massive amounts of market and competitor historical data in order to create a seamless, dynamic pricing strategy, in real time, across various product categories and specific items.

What Online Retailers Can Achieve from Price Optimization Analytics

  • Determine and set the right initial prices
  • Make calculated decisions of the timing and size of markdowns
  • Better utilize promotions and discounts for different shopper segments
  • Optimize their assortment, order management and inventory
  • Optimize prices for the various channels (websites and platforms)
  • Get a boost of online traffic to your site due to dynamic pricing
  • Improve onsite conversion rates
  • Maximize margins and more quickly unload items from stock
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The Secrets to Smart Retail Price Optimization

As advanced as price optimization software may be, retail teams should be wary of the hands-off approach.

Make Calculated Price Changes

Using a price intelligence solution means retailers can make calculated price changes. Retailers, and online retailers, specifically, cannot afford to continue making pricing decisions, or announce a sale, without monitoring competition and relying on pricing technologies. Whether made automatically or not, price changes should be the result of competitor and market data analysis.

Strategize by Product Category

Different product categories present vastly different purchase-decision processes for consumers. Besides the price itself (i.e. higher prices may require a more prolonged process; some purchases are based on need; others are emotional decisions, triggered externally or internally; and some are driven by marketing manipulations or seasonality. Retailers should take the various purchase scenarios into consideration and strategize their pricing by product type or category, not across their entire inventory. Understanding the purchase decision process for each category will greatly benefit pricing decisions made by retail teams and reveal strategic opportunities for maximizing success.

Test Prices and Act On Results

Analysis should be carried out not only in the planning stage, i.e. prior to making a pricing decision, but also after, reflecting on how consumers reacted. Sometimes even the most advanced systems cannot predict market surprises, like a new product or service that disrupts an entire category, a sudden influx of similar products, or even a shift in taste. A solid pricing strategy is a never-ending learning cycle of data gathering, decision-making based on the information gathered, observing the market’s reaction, and improving the strategy accordingly.

Why Upstream Commerce is the Best Price Optimization Software

Now that retailers have the capability to react to pricing in appropriate, objective, and timely manners -- and in line with pre-determined objectives -- the choice of your price optimization provider is more important than ever. Having the highest quality competitive pricing data and analysis is what will make your job more manageable, actionable, effective, and profitable.
Platform. You need a platform that is single-minded, strong, and self-contained. Is it easy to understand and work with?  Is your discipline (e.g. retail) the vendor's only focus --  or is the vendor spread across other disciplines? The ideal cutting-edge price optimization and intelligence technology is based on a strong platform that facilitates and integrates the accurate collection, assembly, and dispersal of the data.
Accuracy in gathering and matching your data. "Having poor quality data that you think is good is disastrous for the retailer," says Dr. Shai Geva, technology expert and co-founder/CTO of Upstream Commerce. Accuracy in gathering and matching your data remains the most important element of price optimization. If you don't have accurate matching of characteristics, you're wasting your time, energy, money, and you're not even in the game. 
Scalability. The vendor you need can help you compare from one- to one million or more SKUs per your needs, product-by- product, accurately.
Quality Control. The highest quality vendor will have the highest quality assurance, knowing that "any mistake, mismatch or error takes you out of the game."
Ability to work with decision makers in many departments. If you have spread decision-making and accountability among different departments and levels of responsibility (as has become the practice these days), you want to make their work and integration as seamless as possible.
The technology and client support should be user friendly, easy to adjust, easy to share, and easy to update.

The ideal software vendor will be friendly, helpful, supportive, empathetic, creative, interested in your specific problems and solutions, and available when you need them.

Choose an industry leader who is easy to work with, flexible, technologically-fast-forward, and who meticulously and caringly supports the data gathering, analytics, and pricing and inventory decisions integrated with your goals for company success. The technology must function accurately and smoothly to provide retailers the fuel for wise decision-making and execution while concentrating on optimal results.

Upstream Commerce, pioneer in retail intelligence technology, reinvented Price Optimization for the hyper-competitive market! We provide everything you need for gaining the edge on your competition so you will thrive and survive in today's marketplace: Speed, capability, accuracy, highest-level customer relations and support, and ultimately, your success.

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