Price Optimization: What Drives Value?

Price optimization and pricing excellence 2 important value drivers™ 

1. Visible Value Drivers™ 

• Visible value drivers™ can be anything identifiable by you and/or your customers that can convey true value.  Examples include product features, unique capabilities, convenience and any other "visible" unique assets and propositions.  When maximizing revenue and profit, those assets are crucial to the value proposition.

2. Abstract Value Drivers™ 

• Abrstract value drivers™ are less obvious value drivers™ than visible value drivers™ but equally important.  These have a direct effect on the ability to gain revenue and profit.  Examples of these include in-stock ratio, margin-to-price analytics, supplier performance and other measurable metrics.  The importance of abstract value drivers™ cannot be overstated as each one affects the overall health of the enterprise.  Pricing excellence through actionable interpretation of value drivers™ can have a tremendously positive effect throughout the organization.

Price-Elasticity

All products have a price “band” with high and low values. Marketing efforts, margin and supply chain performance can have a profound effect on the elasticity of price. Value drivers™ both internal and external, will determine how stretchy the price band truly is.

Powerful Indirect Incentives

There are many ways to enhance an offering without sacrificing price. How does a firm convey value without cheapening their product? Often times, companies will offer global incentives to buy from them versus a competitor. Incentives are an abstract way to offer value.  For example, providing a free freight incentive if the customer spends over a particular dollar amount.  An in-store incentive would be loyalty points.  These incentives are used over and over because they work.  This means products can be priced slightly higher (known as skimming) and they will sell more because of the abstract incentives.

ABOUT THE AUTHOR

Dave Leonard is the CEO of Advanced Pricing Logic. He has over 30 years of executive management experience in multi-channel retail, distribution, manufacturing, and catalog merchandising. Mr. Leonard has extensive experience in the area of technology analytics as it relates to price optimization for the mass marketer, inventory control and 
optimization, purchasing optimization, and consumer pricing psychology.

ABOUT APL

At Advanced Pricing Logic we are dedicated to designing innovative analytic software that makes our customers more profitable. Our software transforms data into insight and provides the platform to turn insight into action. Designed by business professionals, our software follows three guiding principles: encapsulate world class analytics, enable customers to take sound action through easy to use applications and ensure ROI less than a year after purchase.

image courtesy of www.freedigitalphotos.net.