Price Engine

With the Price Engine the user can precisely calculate how to determine the permanent prices of a merchandise group, in order to attain a profit optimization without damaging the own price image.

Permanent Prices - Your Profit Guarantee

There is room for improvement in the pricing of many items in the assortments of retailers. The Price Engine as a part of the Retail Simulation Suite developed by Dacos allows retailers to make improvements in their gross profit by creating optimum price lines in product categories.

Using Assortment Competence in the Price Game

In well-sorted categories you will find ”key articles“ that are especially important for the positive price perception of these categories paired with less prominent articles targeted at customers with varying quality standards and habits. A clever, tactical game with the prices of the A- and B-brands, the often especially price-sensitive store brand and the peripheral assortment is very difficult. However, playing this game offers excellent opportunities for a profit increase, while at the same time improving the price image of your company.

The articles which are offered in one product line and are thus often replaceable are evaluated by customers with regard to their different quality characteristics and their price. Purchasing decisions will be influenced by price changes especially with articles where the price is the priority-one decision criterion among various alternatives.

The answers to such questions are highly valuable for achieving a long-term increase in returns through tactical assortment pricing measures without generating a negative price perception on the customer’s side. Unfortunately, these answers can’t be found efficiently without the appropriate tools. Full-line distributors and power stores offer between tens and hundreds of thousands items. Merchandise categories with several dozen alternative product groups aren’t rare here. The solution to these problems is a tool with a high degree of automation that can forecast a customer’s reaction to price changes and determine the appropriate prices.

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Tactical Price Optimization

The Tactical Price Optimization, the core of the Price Engine, simulates and optimizes price changes in the permanent price sector of the complete assortment. Based on the condensed sales data of several months and on the current purchase prices, the Tactical Price Optimization determines a mathematical model of psychological dependencies between retail prices and purchasing probability on the one side and expected gross profit per sales unit on the other. With this model, the modifications in buying behaviour following price changes can be simulated and ideal suggestions for price lines automatically created. The Tactical Price Optimization is a practice-oriented tool that observes the laws of the market and retail economics:

  • The price simulation calculates exact estimates of the gross profit per sales unit and basic amount. The user can thus, quantitatively compare alternative modification proposals with each other and in doing so, determine the best procedure for the category.
  • The Price Optimization maintains and improves the positive overall price perception  in a product line. “Extreme” price changes, especially those in key articles, are not recommended. Price increases for some products are automatically balanced out by beneficial price reductions for alternative products.  
  • Price limits for each product can also be defined manually using minimum and maximum specifications, so as to prevent price changes where not intended.
  • Important psychological price thresholds and the price policy of a company (“all prices over a Euro end with a 5 or a 9”) are not only taken into consideration, but also even used to their full capacity.
  • The influence of different packaging sizes as a quality characteristic and as a determining factor for price sensitivity and possible stockage also enters into the model.
  • Unusual sales processes (“giant customers”, extreme one-day discounts etc.) are statistically recognized and automatically filtered out of the data.
  • Prices can be optimized based on regional differences. To do so, the price model integrated in the Tactical Price Optimization uses different customer preferences and given differences in the offered product range to calculate regionally optimum price lines.

The gross profit for almost all product lines can be increased by an average of two to four percent by simply optimizing the permanent prices. You can often find unused potential allowing even more gain, especially in the neglected product lines belonging to the peripheral assortment. The Tactical Price Optimization helps you increase your return from many different product lines using a well thought-out price policy.

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Further Price Engine Components

The Price Engine provides analyses of all hierarchical levels in the range of items down to bundled and single items. Complete reporting views are available. These cover for example retail price, sales volume, sales and return-histories, as well as listings, delistings and promotional campaigns.

Requirements for its Use

As an application of the Retail Simulation Engine, the Price Engine is part of a modern, scalable software architecture. The Tactical Price Optimization requires access to a data warehouse containing the relevant data. Today, usually all information required is already available there.