Price Optimization Software Big in Retail Business

prostoalex writes "Even if you spent only a single day in an economics class, you're probably familiar with a concept of supply and demand. The Associated Press is running an article on retailers employing mathematical models for price optimization, where some products are priced higher to generate higher margins, and some are discounted to generate larger volumes even at the expense of per-product margins. DemandTec, Oracle and SAP are some of the companies producing those mathematical models for retailers around the country, with AP listing some of the pricing optimizations employed currently."

Comments

Quick - someone patent it ...

[tomhudson]

... after all, "price optimization" has been done for centuries, but now its "with software" instead of a paper and pencil, or a calculator, or a gut feeling.

Seriously - this is NOT new. Not even in the software field.

Re:Quick - someone patent it ...

[AlXtreme]

So you would be willing to search for a cheaper paintbrush, taking maybe an hour of your time, even if it only saved you a dollar?

I would also look for the best deal, but only if in doing so I'd save more per hour than I would make if I were working instead. Personally, I don't enjoy wasting my time running from store to store. Even if I'd save 50 dollars, it probably won't be worth it if that meant shopping 8 hours to find the cheapest store.

Just my two cents.

Re:Why this is good for everyone

[Anonymous Coward]

Yes, this is true, but you don't need complicated mathematical schemes for this. They've been doing it for years.

It's called coupons!

The product is priced on the shelf at the price most consumers are willing to pay (say, about 60%). The coupon discounts the product to a price the other 40% are willing to pay. Now you get to charge two prices for the same product! Woohoo!

Re:game the system

[stoolpigeon]

2) Never look at the products at eye level, they are the most expensive and worst value.
 
That is really not a valid statement, for a couple reasons. The first error is the last two words 'worst value'. Only the customer can determine what the value is. If I'm looking at a condiment section and at eye level is a name brand catsup, and below it is a private label equivalent, the price per unit will probably be lower on the private label. That doesn't necessarily make it a better value. If I think the private label tastes rotten and wont eat it, the more expensive catsup is a much better value.
 
The second issue is that quite often what you see at eye level is determined by who payed for the placement. It may not be the highest margin item for the retailer on its own. But it is their because the vendor payed a royalty to have it where they want it.
 
  3) Move as fast as you can to the back of the store. Start at the back of the store and work your way forwards.
 
That doesn't make a whole lot of sense. If you are talking grocery, very few stores are laid out the same way. There's no way this can be a 'rule' that will help you when what is at the front or back will vary from location to location. I think a better way of looking at this might be - don't buy what is on end-caps and floor displays until you have looked at the prices for comparable items. This means, not running to the back, but going to the aisle where the item is normally located.
 
In larger stores this really doesn't make sense. If I go to Fry's Electronics and run to the back, how does that help me? If I go to Best Buy and hustle right back to home appliances, I'm not sure what I've done to help myself out.
 
The psychology of all this is over rated. A little common sense - like many of the other suggestions in the list, will go a long way. That's not manipulating the 'system' it's just using your mind and operating above a visceral level.