Throughout the last several years, there’s been a higher focus regarding price as an overall merchandising lever. There are a number of factors that are playing into this, including limited consumer budgets, up and down commodity prices, and other broader economic factors. For example, in both North American and Europe, many grocers have shifted their marketing focus toward price and value in a direct attempt to increase (or maintain) their market share. This focus shift has required more investments in terms of technology. In fact, there are now a number of software manufacturers offering solutions that aid in the price-making decision process. These software solutions range from incredibly sophisticated price optimization software solutions to more simple, rules-based price planning software offerings. Let’s take a closer look at what price optimization software is, and why you need it for your business.

What is Price Optimization Software?

Simply stated, price optimization software assists you in ensuring that you’re setting the right price for your goods. But what exactly is the right price? As you know, pricing can be a complicated endeavor. This is especially true the larger or more complex of a market space you’re working in, or if your products are particularly complex. When dealing with complexities, you need a highly-evolved pricing solution. There’s more to setting prices than recovering cost and pulling in a margin. Pricing also has to cover your expenses. But beyond that, pricing has to resonate with customers. Your pricing must relate to a comparative metric that your customer can make sense out of. Software used for price optimization ensures that your pricing is accurate from a financial standpoint, as well as the customer’s standpoint.

Here are 3 key reasons why you need it:

1. Market Pricing Variables Are Simple

We live in a global economy. Let’s say that you’re selling studio headphones domestically as well as in Asia, Europe, and the Middle East. This gives you unique pricing challenges related to local market and economic pressures, and floating currencies. These variables impact the value of your product offering domestically and affect the prices you set here and abroad. As an example, let’s say you price your headphones domestically at $150 USD. You’re obviously not going to charge 150 rubles in Russia or 150 pesos in Mexico. You need to set a reasonable ratio of dollars to local currency for each market you’re operating in. Once you’ve accomplished that, you’ll be able to decide if additional downward or upward pricing adjustments are justified. The software you use for price optimization will allow you to maintain national and regional price lists that will serve every market you’re selling in. Your efforts will be obvious to your e-commerce customers.

2. It Works with All the Common Pricing Variables

When you’re finished with work today, take a trip to the grocery store. There, you’ll notice a wide variety of prices and metrics being used. You’ll see some items priced by the dozen, others by the pound and others by individual physical units. You’ll notice quantity discounts for selected items with premium pricing and other brands that are temporarily discounted. If you were to visit the same grocery store chain in a different neighborhood, you’ll see price differences that are specific to that location. You’ll see other prices that are only offered to “valued customers” and yet others that are only available for a few days. Pricing gets just as complicated in the e-commerce, B2B or direct-to-consumer world. Price per unit can vary widely by the quantity ordered and measured by all kinds of esoteric metrics. A good price optimization tool helps ensure that you’re offering the best price in any potential buying situation.

3. Direct Financial Benefits

What’s most attractive about using a price planning and optimization solution is the direct financial benefits you’ll reap. The many solutions you’ll find in the market offer options that focus on varying goals. You can focus on sales volume in units sold, or sales volume in terms of revenue, for example. Often you’ll find that sales velocity associated with your products is extremely high. This means that a tiny percentage increase in sales or margin will equal a significant increase in value throughout a year. In many cases, you might find that when you optimize your prices, your overall sales volume could go down, but your overall margin impact is greatly increased.

Price Optimization Software Is a Must

If you’re serious about increasing your bottom line, it’s time to start price optimizing the right way. It’s a move you won’t regret.

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