- Pricing and Inventory Optimization
An automotive retailer was faced with slowing revenue growth due to changing market conditions and new competitive threats. They aligned with Revenue Analytics to bring more sophistication and consistency to their inventory management and pricing practices through the creation of a new optimization system. Benefits are estimated at more than $160M in annual incremental revenues.
Sweeping changes in the retailing sector are intensifying competition and growing the threat of alternative channels while demand becomes more volatile and product lifecycles shrink.
Retailers can no longer rely on improved inventory management and cost controls to enhance Same Store Sales and COGS. Savvy retailers must adopt more advanced technological approaches to generate revenue growth.
Among these new techniques is markdown optimization which allows retailers to maximize revenue from end-of-season or end-of-life items.
In addition to markdown optimization, Revenue Analytics’ principals have helped some of the world’s leading retailers advance the adoption of Pricing and Revenue Management techniques to gain insight into many drivers of consumer demand such as advertising, promotions, pricing and discounting. At the core of these capabilities is our experience in: (1) a granular analysis of billions of individual transactions, (2) isolating the variables which drive customer behavior and (3) predicting consumer response to these demand-influencers.
These predictive capabilities have enabled our clients to add millions to their bottom lines by more accurately segmenting customers, understanding potential “holes in the basket,” targeting appropriate campaigns and managing response at an individual store / SKU level.
Demand Forecasting
In addition to being the foundation for all business planning, forecasting is the bedrock on which successful Pricing and Revenue Management programs are built. We partner with clients who seek to evolve their forecasting and demand planning to:
- Predict demand at a granular level, by product, market, store and customer segment
- Incorporate price sensitivity, seasonality and trend into forecasting algorithms
- Leverage forecast to streamline inventory allocation, assortment planning, pricing, promotions and procurement decisions
Customer Profiling
Many retailers are moving from analyzing what their customers currently purchase to what their customers could be purchasing by using sophisticated customer profiling techniques. We collaborate with clients to devise the business processes, tools, advanced analytics and models to:
- Understand buying patterns and trends at a customer segment level
- Compare individual customer behavior to its segment to identify “holes in the basket” for opportunities to sell higher volumes or additional product lines
- Develop reports and alerts to facilitate procurement and planogram discussions at the individual store level
Lifecycle Management
For many retailers, product lifecycles of varying durations are significant drivers of demand and must be accounted for in determining optimal pricing and discounting strategies. We partner with clients to:
- Create sophisticated measurements and metrics to determine and predict individual SKU lifecycle stages and durations
- Develop pricing, discounting and inventory strategies to maximize revenues throughout the entire product lifecycle
- Design business processes for proxying new product lifecycles, including products with short lifecycles
Markdown Optimization
Enhancing the “art” of determining markdowns with a scientific approach based on analytics has been proven to deliver an incremental 5% to 15% increase in gross margin dollars, and it is a crucial piece of the holistic approach of pricing a product for its entire lifecycle. We collaborate with clients to:
- Create targeted markdown strategies that maximize revenues, inventory turns and gross profit dollars while minimizing pantry loading and stock-outs
- Conduct statistical analysis to understand responsiveness to markdowns at a granular level
- Develop business processes to support in-season merchandise management decisions
- Integrate markdowns with demand forecasting, promotional events, and supply chain planning
Market Response Modeling
For retailers with thousands of SKUs, predicting how customers will respond to price points, discounts, promotions or incentives is educated guesswork. By conducting statistical analysis at a granular level, market response models can be developed for predicting customers’ price responsiveness. Our analytical approach leverages historic sales data, product data, competitive data, customer data and other available data sources to:
- Predict how customers will respond to various price points and non-price drivers (such as advertising medium or store placement), and identify ways to incorporate these models into decision processes
- Leverage market response models to identify SKU level opportunities for price increases or tactical price reductions to stimulate demand
- Incorporate competitive prices and potential competitive price changes into the market response model
Pricing Strategy
In our experience working with retailers, we have found that the best pricing strategies are well-defined, communicated throughout the organization and actionable. Developing the right pricing strategy requires combining strategic objectives with granular data analysis. We partner with clients to:
- Educate stakeholders about potential pricing strategies that fit their current operating model and strategic objectives
- Perform detailed analysis to determine value proposition vis a vis competition at a customer segment level
- Compare value proposition analysis to potential pricing strategies to determine ideal strategy by segment
- Ensure a rational price structure across channels and substitutable or complementary products
- Create a change management plan to communicate pricing strategy throughout the organization
Retail Price Optimization
With millions of SKUs and the diverse preferences of individual consumers, retailers struggle to determine pricing that maximizes contribution. Understanding price responsiveness by micro-market segment and cross-product interactions are keys to improving pricing and profitability in this industry. We partner with clients to design custom price optimization models and processes that:
- Incorporate price sensitivity, competitive offers and demand-to-come
- Provide clear, actionable price recommendations for end users
- Allow a transparent view into key price drivers behind recommendations, rather than a “black box” solution
- Include a comprehensive change management process to identify challenges and constraints, generate visibility and build consensus and lay a foundation for success