White Paper: Price Optimization For Retailers

By Todd P. Michaud, Revionics, Inc.

Retailers of every stripe are facing similar challenges as new economic forces continue to threaten once-stable sales channels; rising commodity costs, inflation, threats of recession, a shrinking job market, increased competition, weak housing and credit markets, and increasing price sensitivity among customers are just a few of the factors creating pressure on retailers.

Pricing strategy has always been an important consideration for successful retailers; however, recent advances in the science and heuristics that drive price optimization are delivering significant benefit to sellers of fast-moving retail goods. This paper examines the emergence of price optimization, explores its relationship to fast-moving retail goods, suggests best practices, and highlights the challenges organizations typically face during adoption of a price optimization program.

A Brief History of Pricing Technology
Figuring out how to have the right products at the right price (at the right time) is a goal that retailers have shared for decades. The widespread availability of business computing systems in the early 1970s led to the first generation of pricing software, which provided retailers a simple but automated method of generating prices, usually by applying a standard markup to base cost. In the 1980s, second-generation software extended the retailer's abilities to not just automate prices, but also generate prices based on simple correlations. In the 1990s, pricing software advanced to the point of integrating retailer pricing rules and other basic heuristics.