Why Price Optimization is Critical to Success in Online Retail

Regardless of where or what you sell, the price has to change regularly if you always want to offer the best shopping experience possible.

10:34 23 December 2019

Don't forget that shoppers have never been as smart as they are today since they have easy access to comparison shopping engines. Since they can find the lowest price without a problem, enlisting tools such as pricing optimization for retailers is critical. This way, they can get a good understanding of their positioning in the competitive scene. As a result, they will know when's the best time to change their prices, ensuring that they always have the most desirable positioning possible.

In other words, pricing optimization for retailers helps them reach the objectives that are critical to them. For example, while it may be necessary for one company to increase prices to make the most optimal profit, for others, it may be more important to lower them to improve their revenue. What's more, is that most likely, the goals will change, too. Regardless of the objectives, pricing optimization for retailers is highly beneficial. Let's break it down.

How Pricing Optimization for Retailers Can Help

As we mentioned earlier, having unchanging prices will not be beneficial for your sales. After all, customers can now easily find the best deal. So, in addition to losing their initial sale, companies could also miss out on their cross-sells as well. However, continually having the lowest prices possible is not a great option either as it will only damage the value of the brand. As a result, you need to offer the most optimal prices, which you can accomplish with the help of price optimization for retailers. However, if you want to see the best results, you must also take into consideration other types of information such as seasonality, price elasticity, and levels of inventory, to name a few. Let's dive deeper into each one.

Seasonality

There are always high points and low points throughout the year, so you want to make sure that you consider those periods. The high periods will be the most competitive, so having the most optimal price is critical if you want to maximize margins before you hit the low periods.

Price Elasticity

When it comes to setting optimal prices, we suggest that you start with flexible products. After all, some items require somewhat stable prices to ensure high demand, so you should first focus on those with fluctuating demand. Therefore, make sure that you identify which items are elastic and which ones are inelastic and then monitor how price changes influence your sales. This way, you will be able to figure out which pricing strategy is the best to go with into the future.

Levels of Inventory

The levels of inventory will let you know if you can reduce your prices so that you can take away the market share from rivals without having to worry about running out of inventory. Otherwise, your tactic of lowering your prices will only backfire. Additionally, we recommend that once your levels of stock start to get low, you should bring up your price to hold onto what you have left until you get more inventory!

Conclusion

Pricing optimization for retailers comes with many benefits. A few include immediate financial advantages, being able to work in correspondence with categories, automation, consistency, while it also makes it quicker and easier to make decisions. Most importantly, though, it can help you increase your sales while ensuring that you have good margins. The best pricing optimization tools include data management, expert guidance, as well as algorithmic decision-making features. Competera is one such solution that utilizes the strength of AI technology to foretell the influence of each pricing decision, which is made possible by collecting information about the transactions within the retailer's pricing history, consumer behavior, seasonality, as well as the behavior of rivals, too. At the same time, it does not forget to incorporate the objectives and needs of the firm itself!