Transcript Retailers turn to software to find the right price

Article: Merchandise Pricing
Retailers turn to software to
find the right price
Emily Bowden, Megan Chappell, Foster Clark
Types of Pricing Software
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Merchandise Pricing
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Markdown-Optimization
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Price-Setting
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Price Optimization
Example
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Company sold three similar power drills at 3 price
points
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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
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software suggested cutting the middle drill to $110
11% more of middle drill sold
4% less of bargain drill sold
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Equals higher profits
Pricing Methods
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Traditional pricing methods
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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
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Some more price sensitive
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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
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Milk, butter, eggs
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
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Has positive effects on businesses
No more than 150 retailers worldwide using it
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Wal-Mart Stores Inc.
7-Eleven Inc.
Albertson’s
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Saw big dividends after pricing software advised
charging less for such items as paper towels, toilet
paper, ketchup and soup
Markdown-Optimization Software
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Used to determine what to put on sale and at
what discount
Often used by clothing retailers
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the software tends to recommend putting things
on sale sooner, in hopes of moving product faster
earlier markdowns = shallower discounts and less
mega-clearances
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20 percent off instead of 40 percent
Price-Setting Software
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Makes stores more
efficient and savvy at
promoting precisely
what consumers want
Often gives store
managers support for
raising prices
Price-Optimization Software
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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
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Price image (Cheap or Premium)
Proximity of competition
Seasonal factors
Whether featured on coupons
SAP Khimetrics
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They help companies make better decisions
concerning pricing and markdowns based on
fact-based insights about customer demand.
Example: Khimetrics
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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.
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Offer industry solutions in retailing and
consumer products concerning:
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Strategic pricing
High-impact promotions
Localized assortments
Targeted marketing
Promotion excellence
Example: DemandTec
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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
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the key factor in paintbrush sales was whether a
customer was buying paint, not the price of a
brush
Works Cited
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http://seattlepi.nwsource.com/business/3174
69_rightprice28.html
http://www.sapkhimetrics.com/
http://www.demandtec.com/services/solution.
htm