How Analytics Helps Price Optimization Decisions | DMN

Amazon’s quick price cut for Whole Foods, and investor concerns about Blue Apron, together place a spotlight on price optimization in retail and eCommerce. I am going to try to explain some analytics reporting can aid good decisions, and support informed discussion, on product planning and associated metrics for online retail.

High sales have traditionally attracted attention in business news.  But savvy business leaders are starting to recognize that while dollar signs fit a headline, optimizing prices is the best long-term differentiator.  Widespread business intelligence is making analytics essential to the decisions behind price optimization.

Probably the sharpest example comes from eCommerce grocers, particularly the plight of Blue Apron, a meal-prep delivery service that recently issued an IPO.  The public debut opened the startup to financial scrutiny of its cost structure.  Analysts soon critiqued the high customer acquisition cost of BlueApron – $400 per customer according to Business Insider.  Other similar online service-prep providers, looking to ride the eCommerce tide started by Amazon, have seen similar challenges in achieving good profit margins.

Service providers are realizing that competitive advantage with an offering must be paired with advanced techniques that reveal a better real-time understanding of consumer behavior. Personalized price optimization has become essential to a company’s outlook as a result.

Price optimization has been gaining interest over the past few years, especially among service grocery retailers.   A typical grocery store relies on volume sales of low-margin consumer goods.   Personalized pricing – optimized pricing based on customer behavior and preferences – created a breakthrough in managing revenue rather than an concentrating just on sales volume.  The results have gained a higher profile as more retailers have embraced the strategy.  In 2014, the Star Tribune reported how the retailer Target had increased same-store sales because of its price-matching policy on food and health products.

An MBA student with a good SWOT can easily suggest price optimization as an essential element in determining profit.   Analytics, like software, is everywhere, though optimization capabilities were different at its inception.

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How Analytics Helps Price Optimization Decisions – DMN.