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Price Optimization
The Opportunity and How to Benefit

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Price Optimization: The Opportunity and How to Benefit

Executive Summary
Over the past few years there has been renewed focus on the use of price as a merchandising lever. This is due to a number of factors including volatility in commodity prices and the strained consumer purse as a result of wider economic issues. In both Europe and North America, a number of grocers have focused their marketing on price and value, repositioning themselves in an attempt to gain or retain market share. This focus on price has required significant investment in terms of process and people and in some cases technology. There are a number of software providers that offer solutions to aid in the process of making price decisions. These range from simple rules-based price planning offerings to highly sophisticated price optimization solutions which determine the best price position in order to achieve specific goals such as maximizing overall margin. Considering the need to balance the consumer’s desire for low price with the retailer’s need to maximize value for its shareholders, the adoption of sophisticated solutions has not been as high as some analysts had anticipated. In this white paper, we will discuss: • Why pricing is more important than ever for grocery and hardline retailers • Benefits that can be achieved when using technology to help make price optimization decisions • Fears or barriers to sophistication—why retailers have been wary of price planning and price optimization solutions • What to consider when selecting a price planning and price optimization solution

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Apart from the wider focus around consumer consciousness of price and increase in commodity costs there are a number of factors that contribute to making price planning and optimization technology an essential piece of retail artillery.

The Opportunity
To every action, there is an equal and opposite reaction: consumers have become more conscious of price and retailers have adjusted their positioning accordingly. What may be seen as a threat for a retailer can be an opportunity which can be enhanced through the use of the right toolset. Why Now?

Using technology to assist with price recommendations and decisions is more relevant today than ever. Apart from the wider focus around consumer consciousness of price and increase in commodity costs there are a number of factors that contribute to making price planning and optimization technology an essential piece of retail artillery. Over the past 10 years, numerous factors have played a part in influencing this. Number of Products Consumers have demanded more and more choice. Categories that did not exist 10 years ago are now represented in abundance. Even within well established categories the choice has widened. Take the category of coffee, where in some cases the number of discrete SKUs that require price decisions has risen by tenfold in recent years. This increased number of items, dramatically increases the workload associated with making price decisions. Product Complexity Consumers are demanding more choice; as a result there is an increase in differing sizes of the same product. Shampoo, batteries and soft drinks are examples where this is the case. Without careful management there is a risk of generating unit of measure pricing errors. For example, when the price per battery of a two-pack is cheaper than a four-pack. This sort of error can lead to confusion on the part of the consumer and detract from the price image the retailer. The Price Aware Consumer There is a limit to the number of prices a consumer can memorize for comparison between two retailers. But consumers have technology on their side with the rise of online and mobile price comparison. Smartphones allow consumers to carry this information with them and while it may not be practical for a shopper to review every item’s price, it does add further...
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