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Retail Pricing Priority and Complexity
* McKinsey (2019) Automation in Retail

The process of calculating the «best price» necessitates specialists to navigate complex challenges daily, considering multiple influential factors simultaneously, such as promotions, competitive landscape, and demand elasticity.

In its 2019 research, McKinsey identified the top three priority projects that have a significant impact on transforming the business model of retail companies. Among these projects is Pricing Automation, which relies on a data-driven approach.

One of such projects is Pricing Automation based on a data-driven approach.

Retail Pricing Challenges
1 Ignoring elasticity, sales optimization, and gross margins in setting retail prices can lead to suboptimal outcomes
2 SKUs cannibalization and price gaps
3 KVIs are chosen and analyzed by experts not only relying solely on data-driven methods
4 Calculating price elasticity is complex due to such factors as traffic variations, out-of-stock situations, and competitor promotions
5 Inability to adjust pricing at the store cluster level limits responsiveness to demand changes.
6 Pricing during promotions often overlooks the elasticity to price gaps concerning discount depth and duration.
Significant operating leverage in retail
Price drop
by 1% leads to profit decrease by 10-11%
Solution Operation Algorithm
01
Statistical processing and clearing of receipt and sales data
02
ML: price sensitivity assessment
03
Regular prices improvement for various strategies
04
Consideration of behavioral factors and price segments
05
Promotions and seasonal sales
06
Setting prices and Analyzing results
Check the course,
referring to the information board

Customize parameters for goods and store categories

  • Implement flexible settings for each product, format, region, and store cluster category;
  • Specify restrictions on price increases for each product category or SKU;
  • Evaluate current profitability and establish new profitability targets for the entire group or SKUs

Stay competitive with KVIs and competitive pricing

  • Establish a pricing strategy for KVIs;
  • Utilize a solution to calculate prices based on elasticity, price segment, and competitive landscape;
  • Adjust prices considering permissible differences from competitors’ prices according to the chosen strategy;
  • Set new prices within value limits based on competitor prices

Boost gross margin

  • Implement a price improvement strategy with target values;
  • Enhance new prices and assess changes using key indicators;
  • Predict target values to gauge effectiveness and success

Attain detailed SKU results

  • Manage pricing meticulously for each SKU throughout every stage;
  • Determine elasticity, cross-elasticity, price segments, and current sales figures;
  • Maximize gross margin to outperform competitors
Result the best pricing matrix with estimated key indicators
SmartPricing System Features
1
Considering multivariate price elasticity
Price sensitivity is computed for each SKU, considering cross-elasticity factors, and maintains prices within the designated segment while factoring in the impact of promotions, with the goal of minimizing adverse effects
2
Price segments
Accurate price segmentation considers behavioral factors and sensitivity, while optimizing SKU distribution within segments ensures optimal outcomes
3
Store clustering
Optimal pricing matrices can be calculated independently for various factors such as format, region (price zones), and even customer segments
4
Psychological pricing
Psychological pricing, grounded in behavioral factors, assists in mitigating the perceptual impact of shelf price adjustments
5
Product line prices
Products prices within the same brand, featuring identical characteristics but varying aromas or tastes, are computed considering elasticity and targeted strategies
6
New products and private label pricing
New products and own brands pricing considers distinct strategies like "skimming" or "penetration," while factoring price gap between private label and branded products
7
Best price strategies
The best price search employs various strategies, including maximizing gross margin/revenue or adopting a balanced approach. These strategies can be applied to the entire category or individual SKUs
8
Competitive pricing
KVI pricing is always influenced by competitors' prices. Our solution considers this aspect, enabling the selection of different pricing strategies for KVIs, recommending the optimal set, and calculating the Price Index
9
Package pricing
Package pricing is employed to automate bulk calculations for multiple categories or entire product groups
10
Automatic parameter search
The solution will automatically determine the optimal parameters to increase gross margin and attain the targeted growth value
TEST REQUEST
How the solution works

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