How does Price Optimization work? How does it benefit you!

How does Price Optimization work? How does it benefit you!

With the modern-day customer, good pricing always comes first. These days, pricing has become a complex art and science with many factors affecting it, and this increases the need for modern tools like data analytics to come to the most accurate number when determining prices. If you do not use analytics to determine prices, you are treading down a precarious path. A PWC survey suggests that 60% of customers make purchase decisions based solely on price. This statistic emphasizes the importance of correct and accurate pricing for your business.

Today, it is common for customers to compare prices for one product against multiple competitors online in minutes. Consumers are smart, resourceful and fiercely loyal to brands that offer them the most bang for their buck. While a customer may consider multiple factors while making a purchase, the pricing of the product is a common and heavily influential aspect in the final decision-making process of a consumer. Recently, Pricing has become a trickier subject, with many different factors coming into play. The best way to assess your pricing solutions or process is to see how quickly you can access and analyse the consumer information. A robust and agile solution will be able to analyse various outcomes based on available data and give you the outcomes accordingly. The speed of achieving this process is critical for your pricing strategy.


This is where something called Price Optimization comes in.

In this blog post, we are going to explore what Price Optimization is, a very brief understanding of how it works and most importantly, what benefits this can bring to YOUR business.


What is Price Optimization?

Price Optimisation is the process of finding the right price for your products or services. Simply put, it is about finding the perfect balance between profits and value to the customer. When done right, you will notice that customers are a lot less hesitant about purchasing your offering.


How does it work?

Price Optimization requires a complex mathematical algorithm that takes multiple factors into account. When the number of variables is few and the constraints are manageable, price optimization can be developed manually. But as the number of variables increase and conflicting constraints are imposed, optimization techniques require mathematical computation and algorithms to arrive at the right balance that will satisfy both your goals and the customer’s valuation of the product. The steps listed below is a high-level simplified explanation of the steps involved in Price Optimization.


1. Get to know your customers

Optimizing your pricing is all about the data—both qualitative and quantitative. Hard data is the only way to find out how much customers are willing to pay for your product and is the key to breaking free from the guessing cycle. Quantitative data, such as transactional data, customer reviews, supply and demand data, churn rate, and more reveal how you’re doing and what needs to be changed.


2. Assimilate your data

It begins with the gathering of historical data along with data currently being generated. All this data needs to be accumulated in one place, it is then processed and enriched so that it can be used for analytical purposes.


3. Identify your goals

Once this is done, you need to decide what your business goals and targets are. You can run them through the price optimization solution that your company owns. There are many platforms that provide retail specific solutions, but your best bet would be a platform that can create a price optimization model that is customized and unique to your business. This gives you a perfect fit for your goals and ambitions compared to a one size fits all solution offered by many other analytics platforms.


4. Analyse your data to generate insights on consumption patterns

The data is now transformed into usable insights for your product catalogue with regards to pricing. Here, the decisions are made considering prior purchase history with multiple factors like cost, timing and demographics. You can re-evaluate this at a later stage should your goals or segment ever change. You can now use these insights in your business and evaluate the impact they have on your revenue.


Benefits of Price Optimization

Coming to the most important part of this article, we want to highlight the various benefits a business can reap from adopting Price Optimization and Data Analytics as a part of the company’s functions. At the end of the day, nothing can validate the effectiveness of a solution other than Business Outcomes!


1. Immediate Financial Benefits

Price optimizations provide opportunities to focus on a variety of goals such as the margin of sales and the number of conversions. This, in turn, can make financial benefits clearly visible for any retail business and can add to its growth and expansion.


2. Automate the Entire Process

Price optimization solutions in retail help in automating the entire optimization process. This minimizes the manual work and reduces the possibility of any man-made errors. Therefore, predictions are more accurate and will not impact businesses negatively in any way. Price optimization solutions also helps businesses adjust their prices automatically whenever a change in the market trends may occur, across all channels.


3. Better and Quick Decisions

The use of Price optimization solutions in retail can impact businesses positively – if applied in the right manner. It can also help businesses in understanding the buying pattern of the customers and their preferences for pricing. This can further help in making quick pricing decisions.


4. Maintain Consistency

With the arrival of Price optimization solutions in retail, worries about price consistency can be written off. Retail pricing analytics helps rectify past mistakes and provides relevant and correct data to businesses that is reliable. This reduces the chances of errors and helps in maintaining consistency in terms of pricing.



All of this shows how important Price Optimization is and why your business needs to start working towards adopting this right away. The best way to approach this is to find the best fit for your company. There exist many standard solutions that can assist you to a certain degree. However, our recommendation is to find a service provider who can customize the platform to fit the unique needs and requirements of your company. With this approach, you have a customized solution tailored to your needs that can help smoothen the adoption process. At Tesser Insights, we would be glad to work with your company to understand how you function and deliver a platform just for you! With our modern analytics system, you will be able build a custom price optimization solution for your organisation. We also ensure that our partners get all the support they need to get the best from our platform. As we always say; Focus on your business, leave the technology to us!


If this is something you are looking for, please do reach out to us at [email protected]