Case Studies: Chapter 6 – Pricing Optimization
Case study: European retailer reaps a million Euro opportunity by identifying and correcting a price that was too high above market
With thousands or hundreds of thousands of products, how can Pricers zero in on the ones worth looking at more closely?
Step 1: Identify Products with potential pricing issues
Just as in the previous case study, Pricers at this European Retailer started by looking at products with issues, namely by sorting their product data on items with lots of views but lower than the typical add-to-cart ratio.
Step 2: Compare Pricing for Products vs. Competitors
Pricers have access to tools that automatically scan the Internet for competitor pricing on the same items to compare their product prices to the market.
Definition: Competitor Pricing Analysis
Automated competitive analysis tools for pricing may, for example, scan the Google Shopping and Amazon Marketplace sites to understand how much other retailers are charging for the same item.
To enable this, competitive analysis tools have to understand the product catalog, e.g., the Universal Product Code (UPS) of each item, to identify and compare across sites accurately.
By analyzing their prices for products with low add-to-cart ratios, Pricers noticed that they were significantly more expensive on both Google Shopping and other retailers for some products. One of these was a particular oven unit.
Image: Competitive pricing analysis
Step 3: Quantify the impact and opportunity
Great, but what is the business impact? By reviewing traffic volume and purchase rate for this product, they quantified that it generated 2,000 sessions with no conversion over 30 days. With an average purchase conversion rate of 4.12% for the category, the annual revenue opportunity was quantified to be €1.2 Million.
Action and value
The team removed this product from Google Shopping while renegotiating the price with their supplier. Unfortunately, it’s not uncommon that retailers have prices above market because their deal with the manufacturer isn’t as advantageous as those of other retailers.
The moral of the story
As with every function in digital teams, Pricers too have lots of opportunities by including Experience Analytics in their daily workflows. That opportunity comes in many flavors.
We saw one here where prices were too high above the market and the retailer went back to negotiating a better price with their manufacturer. The opposite is just as frequent, i.e. where prices are too low under market and margins can be improved by increasing prices appropriately.
C-SUITE Cheat Sheet for Pricing Optimization
In summary, see the C-SUITE cheat sheet for optimizing pricing experiences toward market prices.