Price optimization

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Under price optimization refers to any process of price formation , by continuous and systematic price changes in the offer are designed to improve a provider's buying behavior of customers in terms of the provider. Ultimately, price optimization always serves to increase the income that a provider can generate with the same offer. Price optimization is an important part of product range management for many retailers and manufacturers. Due to the complexity of the task, software systems that can perform this task automatically have been increasingly used in recent years.

Typical examples for the use of price optimization are the determination of differentiated optimal prices for fashion items, hotel rooms or flight reservations depending on demand and time. A hotel can have a hotel room e.g. B. often offer significantly more expensive during a trade fair than at times when fewer visitors are to be expected. At the same time, however, a hotel is also interested in maximizing the hotel's occupancy. An “optimal” price for a room is the price at which the hotel can achieve the highest possible return.

Markdown optimization

The price optimization of goods that lose value over time for the supplier is called markdown optimization . In the fashion sector in particular, retailers and large manufacturers use software systems for markdown optimization that plan the timing and extent of regular price reductions in the life cycle of a fashion product.

In contrast to a fixed sequence of price reductions (e.g. 25% price reduction in winter sales on the entire range), as planned by retailers, suitable software can automatically determine a large number of product-specific price reductions from the sales figures. Depending on the existing demand, both the amount and the time of a price decrease can therefore vary. Software-assisted Markdown optimization often leads to earlier, but less severe, price cuts.

Tactical price optimization

Tactical price optimization refers to the automatic price optimization in product segments with substitute articles. The aim of tactical price optimization is to increase the average yield achieved.

Many dealers offer a wide range of products that perform very similar tasks and are largely interchangeable for customers. Part of the purchase decision is determined by the price, and a retailer can achieve significantly different income depending on the customer's decision.

The dynamic pricing in product segments with many such substitute goods is called tactical price optimization. The attempt is always made to derive from the current customer demand in a product segment with the help of econometric models which products with high potential unit yield are not bought due to an unattractive price. By reducing the price of such products, in connection with moderate price increases for products with a low unit yield, those products become more attractive from the buyer's point of view, from which the retailer potentially earns more. Alternatively, a system for tactical price optimization can also estimate which products show hardly any changes in sales due to their low price elasticity and implement price increases there.

In contrast to Markdown optimization, the use of software systems for tactical price optimization is still not very widespread in Europe.

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