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Rock, Paper, Scissors: Why You Should Bet On More Than One Vendor for Price Intelligence & Price Optimization

360pi outlines why having different vendors for your price intelligence and price optimization tools is critical for your retail strategy.

You Are Working In A Highly Challenging Environment

It’s no secret – retailers today are faced with unprecedented challenges in coordinating their value proposition across both the physical and digital selling channels. Already, the majority of in-store purchases in the US are online influenced, so e-commerce and your online price image drive not only your online sales, but also your in-store traffic and performance.

Increased e-commerce penetration means increased price transparency across more and more categories, raising the bar for all retailers with the need for more timely pricing insights & actions to address a narrowed pricing target range. In other words:

Pricing too high results in lost conversions. Pricing too low results in lost margins. But how do you know where your ideal price is?

 

… And Your Requirements For Analysis and Optimization Just Get More and More Complex

To begin understanding how to price each product strategically, it is important to understand the dynamics of different categories and the roles of different products within your assortment (i.e. a trip driver vs. impulse buy).

At the category level, e-commerce penetration can be a starting point in determining your strategic approach. A category like Electronics with a high level of e-commerce penetration, or online maturity, will have the highest price transparency and the narrowest acceptable pricing target range, with Amazon likely the perceived price leader. A nascent online category like automotive parts will have the widest target pricing range often in excess of a 50% delta, and Amazon will be starting to assert its price leadership in key sub-categories. (Get full report)

Also, at the category level, you will need to look at the number of competitors, price-demand elasticity, and price change frequency. As well, it’s important to match your category-specific approach to your desired price perception in the market. Are you looking to achieve intelligent and dynamic pricing online, optimize in-store sales, minimize unsold inventory, etc.

When you superimpose the above with product-level considerations such as different manufacturer dynamics, competitor promotions, motivation for purchase, inventory and sales statistics, price elasticity and bundles with other products, assortment considerations, customer personalization, and other issues, you can see how this becomes a very complex problem.

 

Real-time Price Intelligence Integrated with Price Optimization Helps You Navigate this Complexity!

The good news is, pricing technology has kept pace with complex industry dynamics and you can access an unprecedented amount of data presented by enterprise-level analytics and optimization tools. Pricing intelligence and pricing optimization tools in particular, address the above complications directly.

A pricing intelligence solution, such as the 360pi suite of products, helps you understand what is going on in the market around you – competitor prices and assortments, category trends, private brands, MAP violations, etc. This data enables you to make decisions with full visibility of the online market as your customer sees it. However, without a pricing optimization solution, you are unable to act on this data fast enough.

A pricing optimization solution, such as IBM’s price optimization system, takes into consideration a wealth of internal data such as inventory levels and your unique product and sales dynamics, combines it with the external view from price intelligence, and recommends and/or sets prices that are optimized for all these variables. However, without accurate price intelligence, you will be making the wrong pricing decisions and potentially starting a dangerous domino effect.

 

However, One Can’t Do The Other’s Job

One of the recommendations in our RFP Checklist for Retailers, is that a large retailer should look for an integrated solution of best-in-class partners rather than an all-in-one package. Here’s why.

Pricing intelligence tools can’t do price optimization well.

While smaller retailers may be able to get by with a basic rules based engine, larger retailers’ complex requirements cannot be satisfied with a few simple rules like:

  • I never want to be 10% below cost;
  • I always want to have the lowest price on this KVI (because it’s a trip driver);
  • I want to maintain 25% margin within this category.

You can see when you add even this limited rule set together, the inconsistencies and contradictions that quickly appear. Now imagine an enterprise retailer with the overlapping category and product-level considerations we discussed above!

Pricing optimization tools can’t do price intelligence well.

Pricing optimization tools were architected for a store-based environment to leverage offline data for periodic pricing updates. However, without an enterprise-level competitive pricing data feed, these systems lack timely information about the outside world. Price intelligence tools deal with increasingly complex competitive situations that involve hidden in-cart prices, different pricing in different zones, option variations on products, aggressive private label plays, different package sizes and bundles, and competitive assortment shifts. Combine that with hundreds of thousands of products and reduced margin for error and delay, and you get a pricing optimization tool that is making decisions based on data that is wrong – “garbage in, garbage out”.

In other words, without an enterprise grade solution in both, price intelligence and price optimization, a retailer is exposed to pricing inconsistencies and delays that will adversely impact the customer experience and loyalty, give competitors the “leg up” and, ultimately, crush margins.

 

Unstoppable Duo

An enterprise-level pricing intelligence software integrated with an leading price optimization system brings the highest value and return on investment in today’s pricing market. Addressing all the complexities inherent to pricing in both the internal and external perspective, two integrated systems both do what they do best, resulting in the best possible pricing decisions.

Both 360pi and IBM are focused on the large enterprise retailer market and have complementary technologies and competencies. We have built our price and product intelligence solution for enterprise scalability, accuracy, and reliability. As well, we are able to deliver pricing and product data in real-time, when and where needed.

IBM uses state-of-the-art analytics and is a powerful optimization engine that can make the best use of 360pi data input to gain competitive advantage while growing sales and margins.

Both of us would struggle to the other’s job as an add-on option to our respective solutions. And, this is exactly why we’ve partnered: to deliver an integrated solution for retailers that delivers the best possible pricing decisions on an enterprise scale.

About the Author
360pi derives profitable insights from product and pricing big data to help leading omnichannel retailers, etailers, and manufacturers compete and win in a price transparent world. 360pi's customer base accounts for over $US100 billion in annual retail sales and includes Ace Hardware, Build.com, Overstock.com, and RIS Fusion award-winner Best Buy Canada. 360pi monitors millions of products with unprecedented accuracy to give retailers and manufacturers real-time visibility into the market with full awareness of the competitive pricing landscape to "right price" to their respective customers. Ultimately, 360pi helps customers make smarter pricing decisions to drive increased revenues and margins.