Retail Price
Optimization Software

A Practical Guide to Pricing Products Right from the Outset with Predictive Analytics

An exploration of retail price optimization software and modern techniques for predictive pricing strategies.

Retail Price Optimization Overview

An exploration of retail price optimization software and modern techniques for predictive pricing strategies.

What is Price Optimization Software?

Price Optimization Software can be defined simply as software that helps retailers and brands effectively determine price points for products. These systems help retailers understand customer needs, behaviors, and product features that add value to an offering.

The ultimate goal is not just identifying the optimal price point, but also to determine a full strategy for production of a product. Modern price optimization tools can provide guidance on price strategies in the following ways:

  • Generating custom pricing strategies for certain customer groups
  • Regional and international pricing strategies
  • Seasonal strategies for offerings
  • Identifying features that add perceived value
  • Determining the optimum number of units to produce
  • Planning markdown cadences and strategies to maximize margins
  • Insights for marketing campaigns, store placement and packaging
  • Analyzing variants to determine which should be offered in a collection
image_price-optimization

However, many different types of software and systems are available. Some are reactive and some are proactive. Some solely analyze the sales cycle or initial price point, while others start their analysis in the product development phase. We will explore this ever evolving landscape of price optimization software below.

Before Price Optimization Software

Product Pricing is one of the most difficult decisions retailers and brands make on a daily basis. They ask themselves, “What are our customers willing to pay? Are we leaving money on the table, or is this a markdown waiting to happen?”

In the past, retailers relied on in-store testing, sales history for similar products, and traditional competitive analysis to determine pricing for new products. These methodologies overlooked the most essential determining factor in price optimization: The voice of their customer.

Forward thinking retailers are turning to predictive software in order to understand optimal price points and markdown strategies before their products hit the marketplace. Not only are these tools more effective, quicker, and less expensive than traditional methods at determining pricing strategies, but they can also provide recommendations for value-add features backed up by cost-benefit analysis.

How does Price Optimization
Software Work?

image_pricing

Depending upon the price optimization software, a multitude of different technologies and methodologies may be employed to provide insight for users. Some software relies on historic sales data and competitive analysis. Our software leverages survey results and Voice of the Customer. Other software is reactive and requires initial test market price point testing in order to derive an optimum price.

Price Optimization Software

Regardless of the methodologies, most software relies on clearly defined objectives, segmentation, and price elasticity analysis. Price optimization software segments potential customers into different categories based upon region, affinity, or other factors. Analysis tools will then measure or predict the price elasticity, providing guidance for pricing based upon the different groups or segments defined by the retailer. Depending on the software, recommendations for markdown cadences and broader sell-through strategies may also be provided.

Industry leading price optimization software platforms such as First Insight’s InsightSuite platform are driven by a multitude of factors and technologies including those referenced above. We use a combination of predictive analytics tools, Voice of the Customer, historic sales data, machine learning, artificial intelligence, human computational modeling and Bayesian mathematical models to determine pricing strategies. This may sound complicated and time consuming to manage, but in practice, most of these processes are automated and can deliver meaningful results within 24 - 48 hours through our easy-to-use dashboards

What Are the Outcomes of Price
Optimization Software?

In addition to helping retailers and brands set the optimal price, many other insights may be provided dependent upon the capabilities of the platform and data being provided by the user.

Case Studies and Use Cases for Price Optimization Software

Learn how our customers are using First Insight price optimization tools to maximize gross margin, optimize sell through and improve their bottom line.

Proven Business Impact
from Real Customers

Determining Initial Pricing Per Channel

The Challenge

A major footwear brand has completed the design phase for a new assortment of strappy sandals. There are several color and material variations that can be introduced to the design. The brand’s goal is to optimize sell-in while preserving their flagship style in the assortment.

The Solution

Test the entire assortment at various target ticket prices using First Insight’s predictive price optimization tools. As the product had already passed the design phase but had not yet entered the market, a focus was placed on deriving the optimum price to maximize demand.

The Result

For the flagship style, the manufacturer found that dropping the ticket price from $99 to $79 could more than double initial demand -- from 17% to 46%. This led to the highest gross margin (73%), dollar sales and unit sales per week of all sandals tested.

sandals-xs sandals-lg shoe-price-table

Pricing & Buy Depth

The Challenge

A shoe buyer wanted to understand how to price and buy a new bootie they planned to offer in several colors. They wanted to optimize full-price sell-through at 60%.

The Solution

The buyer tested the new bootie across all color options with First Insight’s InsightPricing to determine the optimal price point for the group based on their targeted sell-through goal.

The Result

Most colors showed full-price sell-through close to 60% at $149. They modified their buy depths per color based on value scores and % sell-through vs. the 60% target. The buy was increased by 3,300 pairs. This style was the season’s top performer with strong sell-through and no additional markdowns.

demand-by-price-point-graph dress-price-table

A Look at Predictive
Pricing Optimization

Predictive Pricing

While most pricing optimization tools are reactive, First Insight offers a predictive pricing optimization solution as outlined in the case studies and use cases above. Our system can provide pricing strategies much earlier than other optimization software and is leading the charge for the next generation of pricing technologies.

Our predictive platform collects customer feedback on new product designs through social, email, and third-party panels to gather a statistically significant sample size. Our platform then analyzes the responses—forecasting the outcomes for key product decisions within 24 to 48 hours.

The results include clear product recommendations, aggregated customer comments, and vital price sensitivity data. The pricing data features an elasticity curve for each product which includes the predicted Average Unit Retail (AUR) aligned with your business’ typical markdown cadence. Our platform allows you to easily identify winning products, and price them right from the outset.

Predictive Analytics and the Voice of the Customer are combined to forecast how a product should be priced—even without any sales history—for effective retail price optimization. By using First Insight to optimize their initial pricing and markdown cadence, our customers are making better pricing decisions – faster – to get to market quickly with the right products at the right price.

PRICING DECISIONS ARE SOME
OF THE MOST CHALLENGING
FOR RETAILERS AND BRANDS

First Insight’s Retail Optimization Software allows you to truly understand what your customers are willing to pay for a given product and their demand at certain price points—allowing you to adjust accordingly. By using our platform, you can establish an effective, repeatable pricing strategy.

30-80 Increase new product success rates by 30-80%, improving forecasting accuracy.
4-10 Increase gross profit by 4-10%.
30 Increase speed-to-market by reducing product launch time up to 30%

Learn More About Our Retail Analytics Solutions

First Insight’s InsightSuite Software Platform utilizes two vital components, The Voice of the Customer and Predictive Analytics, to enable brands, manufacturers, retailers, and licensees to make better product decisions on new products by answering questions that include:

Learn How Our Retail Analytics Platform Works Learn More
Explore Our Retail Price Optimization System Learn More
Our Retail AI Helps You Predict Winning Products Learn More