- Posted by Tim Manning
- On September 25, 2014
- price optimization, retail pricing software
Retail pricing rules are more important today than ever for OmniChannel retail, eCommerce and brick & mortar retailers alike, in order to enforce retail price strategy, compete effectively and deliver a consistent shopping experience. How rules are handled inside price optimization solutions is critical. Price optimization should not be solved 1st and rules solved 2nd – as it has been done for years – otherwise rules violations and pricing inconsistencies occur and same-store sales erode. Therefore, the order must be reversed: rules administered first and then optimization constrained by these same rules. This applies for promotion optimization, markdown optimization as it does for regular price optimization software.
More Rigorous Price Management Required
Heretofore, approaches for solving pricing rules included 1) ignoring rules initially and tuning optimization results to comply with rules, 2) relaxing rules based on some subjective determination by the user, or 3) solving rules independently and averaging the results. In each case, the trade-offs were performed without comparative sensitivity to other factors or with incomplete information on the category financial impact. More rigorous retail price management is required.
Constrain Price Optimization for Rules
Consider that rules have a monetary value: broken or compliant. If you monetize the rules and rank them in order of cost; bound optimization results by these rules; and then trade off the cost of rules with profit & revenue, you have effectively constrained optimization using intelligent rules. Current retail price strategy and price optimization science can measure these trade-offs; present the best pricing scenarios available to the retailer; and report the number of rules violations associated with each scenario. An approach which is decidedly more compliant with retailer pricing rules!