Predictive pricing offers a sophisticated approach to navigating the challenges of today’s market, allowing retailers to tailor their pricing strategies to meet specific financial goals.
Imagine you have a surplus of old products taking up valuable shelf space. What do you do?
Option A: You could reduce the price of all old products by 20%. This might help move some inventory, but it’s a blunt instrument. You risk slashing your profit margins without any strategic insight into the optimal price reductions.
Option B: You could increase your sales target using your target steering software. This approach allows you to fine-tune your pricing strategy to not only clear out old stock but also optimize for maximum profit, desired profit margins, or a balanced mix of profit and revenue.
By using predictive pricing software, you can strategically steer your pricing decisions to achieve specific financial goals. Whether it’s maximizing profit, maintaining a specific profit margin, or finding the ideal balance between profit and revenue, our target steering feature provides the precision and flexibility you need.
Rule-based steering | Target steering | |
|---|---|---|
Automation of pricing process | + | + |
Utilization of revenue/profit goals | – | + |
Delivers predictable results | – | + |
Here are the four types of target steering 7Learnings enables:
1. You can steer toward the absolute profit maximum
Target Type: Maximum Profit
One of the fundamental goals for any business is to maximize its absolute profit. Our software enables retailers to achieve this by optimizing prices to reach the highest possible profit margin.
Optimization Target: Maximization of absolute profit
Available Range: Maximum profit
Example Scenario: Imagine you want to set prices in a way that ensures your total profit is as high as possible. Our software analyzes market data, consumer demand, and competition to recommend the optimal prices that will yield the highest profit for your selected product range.
2. You can steer towards a desired profit margin on a selected scope
Target Type: Profit Margin
Balancing profitability with competitive pricing can be challenging. Our target steering feature allows you to set and achieve a specific profit margin, ensuring that your pricing strategy aligns with your business objectives.
Optimization Target: Maximization of profit while achieving a given profit margin
Available Range: 0% to 100%
Example Scenario: Suppose you aim to maintain a profit margin of 27% across a particular product line. Our software will adjust the prices to maximize profit while ensuring that the profit margin does not fall below the desired 27%.
3. We also enable steering towards a mix of profit and revenue
Target Type: Profit Weight
Sometimes, a balanced approach between profit and revenue is more beneficial for business growth. Our software allows you to steer towards a mix of both by setting a weighted target.
Optimization Target: Profit * Profit Weight + Revenue * (1 – Profit Weight)
Available Range: 0% to 100%
Example Scenario: If your goal is to achieve a combination of 60% profit and 40% revenue, our software will calculate and recommend the optimal prices that balance these objectives. This ensures that you are not solely focused on profit at the expense of revenue, or vice versa.
4. The most advanced target type lets you steer toward the derivative of the profit-revenue curve
Target Type: Δ Profit/ Δ Revenue
For more sophisticated pricing strategies, our software offers the ability to steer toward the derivative of the profit-revenue curve. This approach helps in fine-tuning pricing to maximize profit while considering the incremental changes in revenue.
Optimization Target: Maximization of profit while achieving a given derivative
Available Range: -∞ to +∞
Example Scenario: If you decide that for every 1.00 EUR increase in revenue, you are willing to lose up to 0.50 EUR in profit, our software will help set prices to achieve this balance. This method is particularly useful in scenarios where small changes in pricing can have significant impacts on both profit and revenue.
Conclusion
Target steering with our predictive pricing software empowers retailers to align their pricing strategies with their specific financial goals. Whether you’re aiming for maximum profit, a desired profit margin, a balanced mix of profit and revenue, or a sophisticated derivative-based approach, our software provides the insights and tools necessary to make informed pricing decisions. Embrace the power of data-driven pricing strategies with 7Learnings and steer your business toward financial success.
