Price Optimization: A Checklist for Retailers

A respected retailer gave me “that” look and said we don’t believe “price optimization” will work for us. He proceeded to share why. He had an unfavorable experience with another vendor and felt oversold and underwhelmed by the value of pricing software.

He gave three examples to prove his point:
  •          He wanted to develop a single category strategy and it took five days to run enough scenarios to result in a satisfactory answer. Optimizing all categories seemed unachievable; 
  •         The merchants complained that the science was ‘black box’ and unstable, and;
  •         After six months, the results were inconclusive.
The skepticism seems well founded, according to retailers, many of whom say that price optimization vendors have promised demonstrable returns on investment (ROI) yet remain unconvinced that the technology is worth the investment—and perceived risk. We understand.
As we work with retailers of all sizes, we find a common theme: retailers need help with pricing since they do believe there is great opportunity to create incremental value. Retailers expect vendors to inform and support retail pricing strategies with technologies that really work. The good news is that price optimization can be a proven game-changer for retailers who choose to ‘get it right’.
Here’s a reality checklist for retailers to examine what I call price optimization 2.0.

The Reality Checklist for Retail Price Optimization 2.0

Don’t be Afraid of Change. The retail market has changed and so must the technology which supports it. Legacy systems today simply cannot adapt fast enough to changes in competition and customer preferences. While change can seem risky, complacency is the greater danger. Pricing technology today answers with a crawl-walk-run approach, so retailers can more easily evaluate the technology. Ask your vendor to take a category, analyze the data and show you the real “see for yourself” opportunities. Use the data to output a price file, which then allows you to test and try, i.e., manipulate prices and forecast results.
Test New Levels of Transparency. The pace of change in pricing has increased. Merchants need insight into which competitors, products and categories really matter, together with a clear understanding of the associated price recommendations and their impact on the organization. In other words, Transparency. Most pricing systems of the last decade fail to provide such transparency. Pricing optimization 2.0 reveals opportunities--and errors--within your strategy and can recommend prices that stay within the bounds of your rules. Have your vendors show it, not just say it.
Take A Test Drive. Don’t underestimate the value of the test drive. Unlike older pricing systems, it is much easier today for a retailer to “look under the hood” and test today’s advanced pricing tools with minimal cost or IT involvement. A “test-drive” will quickly reveal fact vs. fiction. Ask your vendors.
Meeting with retailers, learning about their business and offering straight talk based on science, facts and practical implementation are what I love most in my work. Price optimization does not have to be steeped in scientific jargon and complexity. It is best when vendors and retailers keep it simple, avoid disruption and figure out the business rationale for success. Pricing technology can be practical and profitable for everyone involved.  
Retailers may have had it wrong on price optimization based on only a perception created 10 years ago. But today, retailers are listening, experimenting with price optimization 2.0 and challenging the status quo.

Jim Sills is president and chief executive officer of Clear Demand, a Scottsdale, Ariz.-based provider of OmniChannel Demand Management (ODM) software and services. Sills has more than 25 years of experience in the retail industry with companies such as Revionics, SAP and Khimetrics. He has published more than 20 papers and holds seven patents. For more information, visit