Price Setting Transforming through Pricing Optimization

The Challenge

Pricing is important for any business as it has the power to steer or destroy a company’s operating margins & revenue. In today’s heavy competitive world where price is a huge factor in consumer’s buying decision, it is utmost important to keep your product at the right price depending on what you want to achieve – Maximizing your profit OR maximize Revenue OR maximizing a balanced Profit & Revenue.

The Approach

Our Pricing solution is empowered by 4 following key pillars:

  1. Brand Portfolio Assessment & Brand Positioning: Identify brand architecture and determine effective brand portfolio strategy by looking into –
    1. Which brands are underperforming?
    2. What is consumer’s perception of the brand in the portfolio?
    3. Does the premium products higher priced than regular products?
  2. Competitive Benchmarking: Make pricing strategy decisions based on competitor actions by looking into –
    1. What is the price position in the market compared to competitors?
    2. Which competitors need to be focussed on?
    3. Price change frequency of own v/s competitors and who follows whom?
    4. What price changes required to gain competitive advantage?
  3. Price Elasticity: Measuring true price elasticity for products is important as it can be used to identify the price points of maximum profitability – i.e. the point where the increased prices & margins are offset by lower demand and sales. InvoLead brings in best-in-class pre-built ML driven non-linear modelling framework that truly captures the price elasticities along with other influencing factors. Based on Price Elasticity magnitude, following price elasticity zones can be defined –
    1. Perfectly Elastic: A small change in price results in very large change in volume sales. Consumers are most priced sensitive here
    2. Somewhat Elastic: A small change in price results in significant change in volume sales
    3. Unit Elastic: A changes in price matches with changes in volume sales
    4. Relatively Inelastic: Large change in price cause small changes in volume sales as people are not willing to change their consumption
    5. Perfectly Inelastic: Opportunity to increase the price as consumers don’t bother about the price increase as they absolutely need and must pay the set price to obtain
  4. Optimization: Our non-linear & convex optimization engine is flexible to optimize prices based on business need. It has the ability to optimize price points to maximize margin, revenue or a balanced approach between them post applying different business rules constraints like Family Rule, Brand Rule etc.

The Impact/ Potential Benefits

  1. Improved Gross Margin in the range of 1-5% annually
  2. Competitive pricing & promotion capability