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The Power and Pitfalls of Price Optimization

What’s the Perfect Price?

Price Optimization (PO) is defined as: the process of applying data science algorithms and machine learning to determine the optimal price to charge a customer. In this ebook, we dive deeper into the different types of prices (list price, selling price, and net price) and considerations; then we uncover varying routes to answer the question–how do you get to the optimal price? To illustrate the importance of these differences between pricing levers, consider the following basic observations:
List prices are just reference prices

List Price

Constraints such as competitor pricing and minimum margin requirements impact the list price you can set. However, when deciding to adjust an existing list price, how do you analyze and interpret all the data so you can see the effect of list price changes on margins and subsequent prices?

Customers care about the sales price

Selling Price

Unlike a universal list price, selling prices are personal and time sensitive. The ideal price for Customer A is not necessarily the ideal price for Customer B. And the ideal price for Customer A in April might not be the ideal price in October. So how do you know what to charge and when?

Customers don’t care about your cost structure

Net Price

If you don’t have to worry about rebates or loyalty program benefits, consider yourself lucky! In that case, the net price is typically the selling price or some slight offset of it. But are you really in that lucky few?

In this eBook, you’ll learn:

  • What your PO algorithms can and can’t tell you about pricing
  • The context for setting an optimal price
  • The constraints that apply to the possible list price you should set
Continue your price optimization journey today. Download the eBook: