Retailers turn to software to find the right price Emily Bowden, Megan Chappell, Foster Clark Article: Merchandise Pricing

Types of Pricing Software Merchandise Pricing Markdown-Optimization Price-Setting Price Optimization

Example Company sold three similar power drills at 3 price points – one for about $90 – a better one at $120 – a top-tier one at $130 Shoppers often ignored the middle one because it appealed to neither price-fretters nor drill know-it-alls Implemented DemandTec Inc. software – software suggested cutting the middle drill to $110 – 11% more of middle drill sold – 4% less of bargain drill sold Equals higher profits

Pricing Methods Traditional pricing methods – Cost to the retailer plus a set markup to ensure a profit – Price matching competition – Charging last years’ price Problem with marking all items up by roughly similar percentages – Some more price sensitive Milk, butter, eggs – Specialty products often are under priced Loss leader - routine item such sold at cost or a slight loss, to entice people into a store and establish a bargain reputation – By doing this, the store hopes to more than make up the difference on other regularly priced products The above are usually based on trial and error!

Merchandise Pricing Software Has positive effects on businesses No more than 150 retailers worldwide using it – Wal-Mart Stores Inc. – 7-Eleven Inc. – Albertson’s Saw big dividends after pricing software advised charging less for such items as paper towels, toilet paper, ketchup and soup

Markdown-Optimization Software Used to determine what to put on sale and at what discount Often used by clothing retailers – the software tends to recommend putting things on sale sooner, in hopes of moving product faster – earlier markdowns = shallower discounts and less mega-clearances 20 percent off instead of 40 percent

Price-Setting Software Makes stores more efficient and savvy at promoting precisely what consumers want Often gives store managers support for raising prices

Price-Optimization Software Has ability to calculate a large degree of variables more efficiently than humans Takes store data and predicts how much of something will sell at given prices Hunts for items that correlate with each other Factors multiple elements – Price image (Cheap or Premium) – Proximity of competition – Seasonal factors – Whether featured on coupons

SAP Khimetrics They help companies make better decisions concerning pricing and markdowns based on fact-based insights about customer demand.

Example: Khimetrics Retailer charged high prices for ice cream, but frequently offered deep discounts Consumers largely bought ice cream only during the promotions Khimetrics advised reducing the regular price of ice cream and running fewer sales Eventually revenue and profits rose

DemandTec, Inc. Offer industry solutions in retailing and consumer products concerning: – Strategic pricing – High-impact promotions – Localized assortments – Targeted marketing – Promotion excellence

Example: DemandTec Paint store’s best selling paintbrush was its cheapest one, at $1 DemandTec suggested that the store stop selling the item altogether Software showed that would help the store sell more of its higher-priced paintbrushes – the key factor in paintbrush sales was whether a customer was buying paint, not the price of a brush

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