Solve The Supply And Demand Dilemma

In 2002, during a deep recession period, D'Agostino Supermarkets (New York) increased sales and profits across half of its 23 stores in a few months. How did the company do it? First, consider what it didn't do: It didn't inflate prices, and it didn't slash payroll or change its product mix. Instead, D'Agostino Supermarkets turned to Demandtec's (San Carlos, CA) pricing optimization software. Reviewing sales data from two years prior, pricing optimization software notched the price of a can of peas upward in certain stores. This pushed customers to buy another brand that sold for a comparable price - but offered higher profit margins. In other stores, the company lowered prices on other products when analysis showed customers would respond favorably to a price decrease.

Price Optimization Ideal For Multiple Products
Now, retailers such as D'Agostino Supermarkets can determine what will happen to a product's sales, and those of similar products, when prices are changed by as little as a penny. Also, companies can track this at the individual store level, avoiding a one-price-fits-all strategy in regions that cater to markedly different demographics. "There's no way a human could take all the information about a 100-item category, in 23 stores, over a 2-year period, and make any sense of it," says Nicholas D'Agostino III, VP of D'Agostino Supermarkets. "Now the computer can do all that work and come up with a viable plan for changes."

Two types of software help retailers set prices. The first is price optimization, which D'Agostino Supermarkets, Longs Drug Stores, and Winn-Dixie use. The other is markdown optimization, which helps retailers like JCPenney, Dillard's, and ShopKo determine the best prices for clearance products. Price optimization software is used by retailers that have hundreds of thousands of items to track across multiple stores and little in the way of seasonal merchandising sways. Markdown optimization attracts a different kind of retailer - apparel stores, for instance, that regularly refresh inventory with new products.