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1. What is price optimization?
Price optimization uses customer and market data to make smart decisions on your pricing strategy. You avoid the guessing game and instead rely on data to price products so they are more enticing to customers. This in turn, maximizes profitability. It also enables you to reduce losses on products that don’t sell. Your team becomes more agile and learns to adapt to different scenarios, whether it is seasonality, inventories, or trends. When you keep track of what’s happening in your market, you can respond quickly with competitive price changes. You can also address supply chain shortages.
2. What are the benefits of price optimization?
Price optimization is your ticket to achieving your sales goals and an effective marketing strategy that maximizes profits. Benefits include:
- Appeal to your customers: When you optimize pricing, you don’t just do it blindly to see how high you can increase the price tag. Instead, you consider what prices will resonate with customers based on the perceived value of your products. You can actually help increase that threshold by improving your product information. Enriched content and high-end images and video show customers the quality of products and explain how each product resolves their issues or meets their needs.
- Creates opportunities to clear out products: Tactics such as deals and bundles can make it easier to push higher inventory products that aren’t selling as well. You can clear out items that are not performing and then replace those items with products similar to your top sellers.
- Build customer trust: Fair prices based on perceived value help build trust with customers. Also, offering deals when appropriate is like a helping hand that shows customers you aren’t just about the bottom line but want to make it easier for them to acquire the things they need.
A PIM enables you to adapt price optimization strategies to improve ROI, maximize sales and profits, and react quickly to market shifts.
3. What products do you alter pricing for?
Your centralized product data offers insights into the products that call for altered pricing. For example, your starting price is the first impression customers have of your affordability. In this case, you need to ensure the price reflects the product’s value so people are willing to pay full price. This kind of price optimization works best for products with longer life cycles, not driven by things like the seasons, a holiday, or a trend. These are products people need all the time. If people aren’t willing to pay your initial price, then there is an issue with perceived value. You either need to convince customers the quality is better than they think or adjust the price to reflect the market.
When it comes to discounts, they apply to shorter life cycles, such as fashion and holiday items. As the season or trend comes to an end, it’s time to start offering discounts. This helps you decrease stale inventory to make room for the product shift driven by seasonality.
The final consideration is promotional pricing with temporary reductions that create a sense of urgency to purchase. This works well when you need a boost in sales or a way to attract new customers. Promotions include kit and bundle strategies, buy-one-get-one-free offers, exclusive pricing via a special product code, etc.
Visibility into product performance is made easy when product data is centralized. You can track SKUs, figure out what items need to move faster from your warehouse or store shelves, and quickly make changes to information and prices to take advantage of market trends.
When choosing discounts, you need to be strategic with every discount you push forward. Discounts send a signal of value to customers. However, while you might increase sales volumes, if the volumes come at a loss, then your price strategy isn’t working.