base. And of course, cost pass-through is more strategically complex in arecessionary or "stagflationary" economic environment (when inflation andstagnation occur simultaneously). As the complexity of pricing increases,so does the risk of errors, further accelerating the need for an intelligentapproach to pricing.
What Does Pricing Optimization Do?
Price optimization ultimately simplifies the complex -enabling retailers to merchandise products withincreasing precision and efficiency, moving fromnational to zone to cluster to store-specific pricing,promotion and assortments. with standardheuristics, business processes, and metrics.These toolsets provide analytical horsepower andbreadth of view that traditional methods cannot.Pricing optimization tools generate optimized pricerecommendations based on the price elasticity of items, categories and departments all the way downto the store level, as well as provide the implicitmargin and sales consequences of thoserecommendations and the alternatives.This capability enables the retailer to focus on pricing strategies to satisfyits core shoppers, therefore, pricing optimization needs to focus onenabling suppliers and not to separate pricing or over complicate thebusiness process.
Price Optimization - Why is it Important?
Understanding pricing optimization is a key capability and enabler forgrowth. It enables suppliers to:
Determine the best role for categories profit builder, turf protector,and so on - given shopper preferences.
Meet category objectives by adjusting regular everyday prices inconjunction with promotions and clearance or markdown price.
Improve decision support with "what if" analysis to see the impactof pricing on sales, profit, and price image for any SKU across theassortment.Pricing optimization enables a strategic approach to pricing and freessuppliers to act on customer centric insights. While pricing optimization is adeveloping science, there remain a number of limitations, including:
Marketing drivers, which are not an input to the model.
Innovation, which is difficult to model.
Consumer/shopper insights, especially of key target segments,are still highly influential to pricing strategy.In-store promotion, marketing landscape and retailer expectations willchange and there is a big opportunity for vendors to guide and lead tobetter consumer solution.
Retailers and Price Optimization
Express Stores - Conveniencefood retailing is changingglobally as consumers expresstheir preference for healthy,fresh, and ready to go (orconsume) foods.
Private label - Strategic storebrand programs are asignificant growth strategy forretail leaders.
Meet Our Analysts
Dan W. O'Connor is thePresident & CEO of theRetailNet Group. He also isthe Founder of ManagementVentures, Inc. (MVI), a WPPGroup company. Dan is awidely known industry speakerand thought leader.Aaron Chiois a Senior Analystleading RNG's development of new research, insights andgrowth strategies in LatinAmerica.Tim O'Connoris Vice Presidentat RNG, currently responsiblefor RNG's Growth Strategies