Overcoming overstock: How retailers thrive in unpredictable markets in 2023
Retailers are navigating unprecedented times: After two years of soaring e-commerce business during the COVID-19 pandemic, customers are much more hesitant to spend their money in 2023. Inventory gluts dampen business results while market dynamics stay high. If retailers want to keep growing despite this continuing uncertainty, they need to find new ways to optimize inventory and prices in sync.
Navigating overstock with smart pricing
Inflation has been a dominant concern of companies and customers alike. Consumers across Europe have been grappling with rising energy prices, stagnant wages, and the soaring prices of everyday commodities.
Although demand is slowly picking up in the second half of 2023, lots of retailers expected a more significant upturn in consumer demand and found themselves overstocked as reality fell short of projections. One reason: pricing. According to a global McKinsey study in groceries retail, 53% of consumers look for ways to save money, an increase of 12% compared to 2022.
Retailers lower their prices to accommodate consumers to the expense of their profitability. As a consequence, 88% of CEOs name margin pressure as the predominant topic of 2023. As pricing and inventory are inextricably linked, retailers need to optimize pricing and stock together if they want to keep their business healthy.
New technologies: Selling at optimal prices on autopilot
“Leaders tend to be data-driven and can swiftly respond to the changing consumer.”
2023 Retail Industry Outlook, Deloitte
A common solution to maximize revenue and control inventory-levels is inventory-based pricing. With this dynamic pricing strategy, retailers adjust the price of products based on their available stock. However, traditional technology can only consider a limited set of factors and extrapolate from past inventory levels. In the face of increasingly complex market situations, this approach is less and less helpful.
Thanks to technological advances in recent years, retailers have an alternative: inventory-based pricing solutions that use Machine Learning (ML). They take into account lots of different factors to maximize profit not only in the short term but over the whole season.
Internal and external factors that are most commonly used:
- Historical sales data
- Current event
- Season
- Weekday
- Competitor prices
- Purchase price
- Product condition
- Stock
- Orders
- Marketing activities
Most advanced systems like 7 Learning also take into account the salvage value of the stock at the end of the season to make short term recommendations according to a retailer’s overall business goal.
Despite these powerful advancements, less than 13% of retailers currently invest in ML pricing solutions according to new data from Boston Consulting Group. Most are focusing on short term fixes like marketing campaigns and price adjustments to reach their sales goals or deal with overstock.
The good news is, those who embrace the new possibilities of ML will benefit from being an early-adopter and see dramatic results. Dress for less, a fashion retailer, for example, increased its profit by 30% after implementing 7Learnings predictive inventory-based pricing. Furniture retailer RAumschmiede, another 7Learnings client, achieved a 3% increase in point margin.
Get a quickstart to ML inventory-based pricing
As impressive as the results might be, leveraging inventory-based pricing requires a clear understanding of its principles and practical implementation.
We’ve condensed our expertise of inventory-based price optimization into one short white paper. By reading it, you’ll get familiar with the approach quickly, understand how it works, and discover the potential impact on your business performance.
In the white paper, you’ll learn
- Which industry benefits most from inventory-based pricing
- How price elasticity is a crucial part of reaching optimal prices
- 3 types of sales goals to optimize your prices for
- How predictive inventory-based pricing acts as a silver bullet for reaching your revenue targets
Don’t let market unpredictability dictate your retail strategy. Download our free whitepaper today and discover how inventory-based pricing can help you regain control of your sales and gain a competitive edge.
