Pricing Strategies and Promotion Best Practices

By Jim Sills, Ph.D., CTO, Revionics Inc

True or false? Is it possible to lower prices and make more profit and revenue, even at a lower margin? For many, this seems counter-intuitive, but it is definitely true. We were recently working with a retailer on their detergents category where they had priced an Ajax product at $1.79. We found this product by sorting on price elasticity in the price review screen of RAPS Everyday Price Optimization. The price elasticity of Ajax was greater than 3.0, which represents very strong price sensitivity. Most items have a price elasticity between 0.8 and 1.4.  For those unfamiliar with the calculation, price elasticity is simply the percent change in units divided by the percent change in price. So a price elasticity of 3 simply means that if we drop the price by 10%, the units will increase by 30%. The table below compares profit and revenue between the current price of $1.79 and the $1.49 price suggested by Revionics:

Notice that both revenue and profit increase for the suggested price of $1.49, which is lower than the retailer’ current price of $1.79. Notice that while the margin decreased from 39% to 27%, both the profit and the revenue increased.

Many retailers are missing the opportunity to increase profit and revenue by lowering the price on sensitive items that are priced too high. Revionics solution, RAPS, applies powerful scientific algorithms to isolate the influence that price has on unit sales.  We empower the retailer by making this visible and actionable in their pricing strategy.

• True or false? Price sensitivity can vary by store. This is not a trick question—the answer is yes, of course, some stores are in affluent locations and others are not.

• True or false? Successful retailers know the price elasticity for each item in each store. Yes, as you guessed this is true.

Look for next month’s blog when we challenge our readers to a game of truth or dare…

Truth:  Do you know price sensitive each item is at each store?
Dare:  Challenge us to raise your profits while lowering prices.  This is a game  worth playing!

By: Jeff Smith, EVP and Founder, Revionics, Inc

For some time,  Revionics University has been producing highly attended web seminars pertinent to the retail industry. These seminars have covered a broad range of topics regarding general trends as well as best practices in relation to pricing. With Revionics University expanding, courses targeted directly towards Revionics customers are now available.

Retailers often purchase software or a pricing service and do not fully utilize the value and potential from that purchase, utilizing only a small percentage of the capabilities. We at Revionics want to make sure that our customers are knowledgeable and up-to-date on the capabilities of the RAPS pricing software and price strategy services.  The best way to do this, we concluded, is through training that is easy to access and available to all. The Revionics University Customer Training courses are the latest edition to Revionics University and consist of several courses covering the topics of RAPS Everyday Pricing, RAPS Promotions, RAPS Markdown, and RAPS Insight Reporting. Advanced courses will be available in the near future for more intensive core functionality courses.  The expanded course offering will include topics such as advanced scenario planning, competitive response, promotion effectiveness, private label management, and more.

The Revionics University Customer Training courses should be leveraged within an organization as an aid in the building of expertise in using the RAPS modules. These training courses are recommended for new employees to become familiar in using the RAPS pricing software as well as seasoned users looking to become accustomed to the more sophisticated features offered. The Revionics Customer Training courses will be offered on Friday mornings, and recorded to make it easier for individuals to watch on-demand. Core introductory courses will be offered on a monthly basis.

Revionics University will be hosting a special course, “Understanding Elasticity and Product Demand” on Friday, November 6^th at 9:00am. This course is recommended for individuals who are interested in learning more about the science behind price optimization. Click here to register.

As I stated above, Revionics University will be adding additional courses in the near future. Your recommendations and suggestions on potential course ideas are always welcome. Please contact me for additional information on the Revionics Customer Training sessions at jsmith@revionics.com.