How To Implement Price Optimization In Retail
For some retailers, setting product prices is about as complicated as throwing darts after a couple of beers. Other retailers use so much data and complex analysis that they are soon unable to see the forest for the trees. The real issue for finding the right product price is not necessarily the amount of data or thought that goes into the effort. What matters most is having a coherent and effective system for establishing market prices – a system known as price optimization.
The accompanying resource presents a high-level look at what price optimization is, why it’s worth doing, and what steps are needed to implement price optimization properly. It provides valuable information for any startup retail business or established company struggling to stabilize or improve revenue, profit, and/or market penetration.
The first step in price optimization is to establish your goals. What makes one price better than another? What are the tradeoffs between setting the price relatively higher or lower? How do you know if the price you’ve set is helping or hindering your overall business? If you have a framework and a process for systematically and reliably answering these questions, you are well on your way to successful price optimization – but you can’t do it without a clear definition of your goal. Why? Because the answer to each of these questions depends on whether and how much you want to increase revenues, profits, or market share, and which of these three is the most important.
In the absence of setting clear goals and developing a process for price optimization, retailers rely on market feel, instinct, simple metrics, guesswork, and trial-and-error. While these techniques aren’t entirely bad (some experienced retailers have instincts that rival AI pricing analytics platforms), they are by definition incomplete and reactive. Among the major benefits of a solid price optimization platform are the confidence that comes with relying on complete and accurate data and the ability to lead rather than react to market conditions.
For more than a few companies, an even bigger advantage of price optimization is to finally escape the trap of continuous and deep discounting. How many retailers complain that they are selling their products for far less than they are worth, or that customers just don’t recognize the value of what they’re getting? These are common complaints, to be sure. Price optimization can help retailers overcome these problems by clearly identifying the true value of their products. Once that value is clearly identified, it can be clearly communicated in a persuasive way.
To learn more about how price optimization can improve the performance of your retail business, check out our resource.
Infographic created by Clover Network