Get Inspired Influencing Price Perception

Influencing Price Perception to Drive Sales and Boost Margins

The challenge: Influencing price perception to keep a competitive advantage

Consumers are looking for more convenience. The rise of online shopping and “everything stores” have made big office supplies stores less attractive to shoppers. For these big retailers, optimal pricing is key to keep a competitive advantage. To address this challenge, an international office supplies retailer wanted to understand what drives their customers’ price perception. To be precise, they wanted to know which items are most price-sensitive, identifying the so-called key value items. Their goal was to improve their pricing strategy in order to influence their customers’ price perception, thereby stimulating purchases and increasing sales.

How we created value: Dynamically qualifying inventory to increase sales and margin

To help the retailer identify their key value items, we created a dynamic inventory qualification system using advanced analytics. This allowed us to compare historical price elasticity and customer basket information. The approach enabled them to:

■ Identify their key value items, products with high price elasticity - typically added first to the shopping basket - that require (highly) competitive pricing.
■ Identify their core items, key products in their inventory with low price elasticity - typically bought together with key value items - that allow for relatively higher margins to compensate for the low margins on key value items.

This approach allowed the retailer to classify their inventory of almost one million products automatically and consistently - a task that would have been impossible if performed manually, by any employee. Their pricing strategy is now destined to increase sales while maximizing total margin.

Better results: Retaining a competitive advantage without compromising on margin

Thanks to the dynamic qualification of their inventory, the retailer is able to create and constantly update their pricing strategy in an optimal way. The retailer attracts more customers by offering competitive prices on their most price-sensitive items. At the same time, required margin levels are achieved, as the retailer is able to set higher prices for products that allow for higher margins. In a highly competitive and price-sensitive market, the retailer is now able to boost sales and keep its competitive advantage without compromising on margin levels.

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