Discover all ins and outs about price optimisation

The Price Optimisation Guide

Why, benefits, use cases and more...

ABOUT PRICE OPTIMISATION

The Ultimate Guide to Price Optimisation

1

What is Price Optimisation?

Price optimisation is the process of finding the optimal price point for a product or service. The optimal price is the price point at which the seller can make the maximum profit without reducing demand.

2

What Happens if you Don’t Optimise Prices?

Without Optimal Pricing, Low Profitability and Margins In Business are a common phenomena. Here are some of the reasons:

  • Wrong Pricing Strategy
  • Too Many Overhead Costs
  • Hidden Costs
  • High Competition
  • Lack of Consistency in Payscale or Expenses
  • Not tracking Cash Flow

3

How do you Optimise Prices?

The basic formula for calculating the right price for your product is Profit = Price x Volume – Total Cost. Here you can see that price is the multiplying factor. You can then employ various pricing strategies depending on your industry and the market to find the optimal price without a significant decrease of demand. You can also automate the optimisation process through pricing software.

Why Winning companies have a constant loop of Price optimisation?

By regularly monitoring and adjusting their prices, companies can ensure they are maximising their profits and staying ahead of the competition.

Price optimisation is not a new concept, but it has become increasingly important in recent years as businesses have become more data-driven and competitive.

In today's market, those who are not using price optimisation are at a significant disadvantage. In other words, winning companies heavily use price optimisation to stay ahead.

PRICE OPTIMISATION IMPORTANCE

Why Use Price Optimisation?

Let’s get a deeper understanding of the reasons behind using price optimisation.

Here’s why businesses must use price optimisation. »

Optimise profit margins

You can get better margins and growth because you’re not leaving money on the table.

1

Boost customer loyalty

You can make data-driven decisions based on deep insights into customer behaviour. By optimising price, you can increase customer loyalty.

2

Enhance price positioning

You can improve or maintain your price position in the market. Respond to market changes such as on competitor prices, supplier cost, inflation etc.

3

Additionally, businesses offering highly differentiated or unique products and services may be able to justify higher prices, even if they are not directly competitive with other offerings in the market. Ultimately, the choice of a pricing strategy should be informed by a thorough understanding of the business's unique circumstances, market dynamics, and customer preferences.

In summary, AI in pricing equips organisations with the tools and insights to make smarter, faster, and more customer-centric pricing decisions. This leads to enhanced profitability, competitive advantage, and a better understanding of the market and customers,all of which are crucial for success in today's fast-paced and ever-evolving business landscape.

How to use an AI-driven Pricing Software?

By using pricing software, companies can identify their product’s elasticity, their demand’s behaviour and consumer reaction to price changes. You can also analyse historical data to find out the demand at a certain price sold then. Likewise, you can lower your prices or set high prices for maximum revenue and profits respectively.

Watch and learn with these videos on how to get started on using SYMSON’s platform to optimise your prices. »

PRICE OPTIMISATION EXAMPLES

6 Examples of Price Optimisation

Businesses optimise their prices differently according to their product types, business type and other macro aspects like seasonality, time of the day, and so on. Let’s understand better with a few clear examples of price optimisation. You can also take a look at the different types of price optimisation software.

1

Perfectly Elastic Demand

This occurs when a slight change in price results in an infinite change in quantity demanded. In other words, consumers are susceptible to changes in price and will only buy a product at a specific price.

2

Perfectly Inelastic Demand

This occurs when a price change does not impact the quantity demanded of the product. In other words, consumers are willing to buy a product regardless of its price.

3

Relatively Elastic Demand

This occurs when a small change in price results in a fairly significant change in quantity demanded. In other words, consumers are sensitive to changes in price and will likely buy more of a product if the price decreases. 

4

Relatively Inelastic Demand

This occurs when a price change has a relatively small effect on the quantity demanded. In other words, consumers are not very sensitive to changes in price and will likely continue to buy a product even if the price increases.

5

Unitary Elastic Demand

This occurs when a change in price results in a proportional change in quantity demanded. In other words, consumers are exactly as sensitive to changes in price as they are to quantity demanded.

1

Costs of Goods Sold (COGS)

Understanding the cost structure of a product or service is essential when implementing a competitive pricing strategy. This includes considering direct costs, such as materials and labour, and indirect costs, such as overheads and marketing expenses. By comprehensively analysing costs, businesses can determine the minimum price at which they can sell their offerings without incurring losses while ensuring they remain competitive.

2

Competitor prices

A thorough analysis of competitors is crucial when adopting a competitive pricing strategy. Businesses must identify their primary competitors, monitor their pricing strategies, and assess the price range within which their offerings fall. This information allows businesses to set their prices in a manner that is competitive while still delivering value and maintaining profitability.

3

Market conditions

Market conditions, such as supply and demand, also play a significant role in competitive pricing. When demand is high, businesses may have more flexibility in setting higher prices without losing customers. Conversely, during periods of low demand, businesses may need to lower prices to remain competitive and attract customers. By staying up-to-date with market conditions, businesses can make informed pricing decisions that optimise their competitiveness and profitability.

4

Product differentiation

The level of differentiation a product or service offers compared to competitors influences the effectiveness of a competitive pricing strategy. If a business can demonstrate unique features, superior quality, or additional value, it may be able to justify higher prices than its competitors. In contrast, for products or services with little differentiation, the price may become the primary factor in attracting customers, necessitating a more aggressive pricing approach.

5

Target customer segment

Identifying the target customer segment is another essential factor when determining competitive pricing. The price sensitivity of the target market will influence the business's pricing decisions. For example, if a business targets price-conscious customers, it may need a lower pricing strategy to remain competitive. Conversely, if targeting a more affluent customer segment, the business may have greater flexibility to set higher prices.

1

Identifying New Price Sensitivity Drivers

As you know by now, the first step would be to find new drivers that influence price sensitivity. To do this, you can combine customer point-of-view along with datasets. This process ensures more precision in calculating the sensitivity level.

2

Create a Regression Model

You can calculate the quantity, average price, and other numerical or categorical factors for each product to construct a data frame for the customer. Using this dataset, we at SYMSON built a regression model. Studying these datasets allows businesses to quantify the influence of each driver on price sensitivity and sales volume.

3

Aggregate Coefficients from the Regression Model

This step uses the regression output to calculate the price sensitivity scores of each product. The equation yields a price sensitivity prediction, which represents how a 1% change in price impacts the % change in quantity sold or demanded. For instance, price sensitivity of -4% means that a 1% rise in price results in a 4% drop in the quantity sold.

4

Interpret Price Sensitivity Scores

Based on the coefficient computation from the regression model, we assign weightage differently to different coefficients to calculate the sensitivity score. A higher sensitivity indicates that customers are more responsive to price changes, while a lower score indicates a less significant response.

5

Act upon Price Sensitivity to increase Margin or Sales

After the price sensitivity test for a set time period, you can implement strategies for the product group in order to balance profit margin expansion and sales growth.

1

Time-based Pricing

This approach involves adjusting prices based on seasons, day(s) of the week, or specific hours. For instance, hotel rates may be higher during peak travel seasons or weekends.

2

Demand-based Pricing

Pricing based on demand entails setting prices higher during periods of high demand and lower during periods of low demand. Airlines often use this strategy, with prices fluctuating based on factors like seat availability and time of booking.

3

Segment-based Pricing

This approach includes dividing customers into different segments and offering customised pricing based on their characteristics or behaviours. For instance, a software company may offen differ.

4

Competitor-based Pricing

Continuous analysis of market prices is necessary to promptly reprice your products either to stay competitive or to gain margins with a powerful value proposition. The dynamic pricing model considers this approach to maintain competence in the market.

1

Seasonal Pricing

You may have noticed that prices fluctuate for these industries greatly depending on seasonality. These industries are primarily looking to maximise revenue since they have a limited supply (i.e., they have a fixed number of rooms or seats).

2

Surge Pricing

Cab services usually increase their prices in areas or timings where they detect high demand, like events, pubs, and commute times.

3

E-Commerce Sites

Sites like Amazon test different prices throughout the day and year based on customer behaviour and the volumes of data. They may also change prices seasonally, for example, during the holiday season.

4

Market-Based Pricing

During times of inflation, companies are likely to see a decrease in consumer spending and an increase in costs. As suppliers' costs increase, most companies increase their prices accordingly to keep profit margins intact. Others may choose to slash prices to encourage spending.

5

Customer-Segment-Based Pricing

Some products can be offered to different customer segments at various price points based on their purchasing power and habits. SaaS companies, for example, have different tiers of pricing based on the kind of user they sell to, whether individuals or businesses.

6

Product Lifecycle-Based (price skimming)

This is usually seen in luxury brands where the initial price for a product may be much higher at first, compared to later in its lifecycle when the hype (and demand) die down.

1

Collecting your historical data

The algorithm gathers historical and real-time data from various sources. This includes internal data like sales history, production costs, and inventory levels, as well as external data such as market trends, competitor prices, and customer behavior.

2

Processing the accumulated data

The collected data is cleaned and prepared for analysis. AI algorithms require high-quality, relevant data to make accurate predictions. This stage often involves handling missing values, removing outliers, and ensuring the data is in a format suitable for analysis.

3

Selecting relevant factors

The algorithm identifies which factors (features) are most relevant to pricing. This could include product types, time of day, seasonality, customer segments, and more. Selecting the right features is crucial for the effectiveness of the pricing model.

4

Training the model

The AI uses the prepared data to train a machine-learning model. This involves feeding the data into the model and adjusting the model's parameters until it can accurately predict prices. Common techniques include regression analysis, decision trees, and neural networks.

5

Testing and Validation

The model is tested on a separate set of data to validate its accuracy. This helps ensure that the model will perform well on real-world data and not just the data it was trained on.

6

Predictive Analysis:

Once validated, the AI model analyzes current market data and predicts the most effective pricing strategy. It considers how different pricing options might affect demand, competitor responses, and overall profitability.

7

Dynamic Pricing:

The AI algorithm continuously updates its predictions based on new data. As market conditions change, the algorithm adjusts its pricing recommendations to remain optimal. This is often referred to as dynamic or real-time pricing.orm well on real-world data and not just the data it was trained on.

8

Pricing Monitoring and Adjustments:

The performance of the AI pricing model is continuously monitored. If the market changes or the model's predictions become less accurate, it may be retrained or adjusted to improve performance

Here is a list of features your price optimisation software must have:

In summary, competitor pricing analysis is a critical component of an effective pricing strategy, helping businesses to understand the market landscape, identify opportunities, and develop strategies that maximise profitability and competitiveness. By continuously monitoring and adapting their pricing strategies, businesses can stay ahead of the competition and deliver value to their customers.

GET COMPETITOR PRICING DATA

How to Get Competitor Data?

Obtaining competitor pricing data is essential for businesses looking to establish an effective competitive pricing strategy. By gathering and analysing this data, businesses can better understand the pricing landscape, identify trends, and make informed decisions that help them remain competitive. Here are several methods businesses can employ to gather competitor pricing data. Here’s a thorough guide to data scraping.

1

Manual research

One straightforward approach to collecting competitor pricing data is through manual research. This can involve visiting competitor websites, physical stores, or online marketplaces to gather information on product prices, discounts, and promotions. Although this method can be time-consuming and may not provide real-time data, it can offer valuable insights into competitor pricing strategies.

2

Price tracking tools

Several price tracking tools are available in the market that can help businesses monitor competitor prices. These tools enable businesses to track prices for specific products or categories across multiple websites and platforms. Some price tracking tools also offer additional features, such as historical price data, competitor analysis, and market trend analysis, which can provide valuable insights for developing a competitive pricing strategy.

3

Web scraping

Web scraping is the automated process of extracting data from websites using specialized software. Businesses can use web scraping tools like Beautiful Soup, Scrapy, Selenium, Cheerio, etc., to gather competitor pricing data from e-commerce platforms, competitor websites, or other online sources. This method can provide more accurate and up-to-date data compared to manual research. Still, it may require technical expertise and ongoing maintenance to ensure the accuracy and reliability of the data.

4

Industry reports and data providers

Businesses can subscribe to industry reports or purchase data from third-party data providers to access competitor pricing information. These sources typically offer aggregated data on pricing trends, market dynamics, and competitor activities, providing businesses with a comprehensive view of the pricing landscape in their industry.

5

Social media and online formula

Monitoring social media platforms and online forums can also provide businesses with insights into competitor pricing strategies. Customers often share their experiences, opinions, and even product prices on these platforms, allowing businesses to gather valuable information on competitor prices and customer preferences.

6

Competitor collaborations

In some industries, businesses may benefit from collaborating with their competitors to share pricing data. This approach can promote transparency and help create a more competitive market environment. However, businesses must carefully consider the potential risks and legal implications associated with sharing pricing information with competitors.

ERP SYSTEM VS PRICING MANAGEMENT TOOL

How are ERP systems and Smart Pricing Software Different?

Enterprise Resource Planning or ERP systems integrate various business processes to improve overall efficiency. On the other hand, smart pricing software uses artificial intelligence to set optimal and intelligent prices by analyzing market and customer data.

The former streamlines internal operations and the latter enhances profitability through data-driven pricing strategies. Read more about how ERP systems and price intelligence software are different. Let’s have a look at the basis of their differences:

1

Functionality and Specialisation

ERP Systems offer broad business management capabilities, including basic pricing functions. They're designed to integrate various business processes but aren't specialized in pricing.

AI-Powered Price Management provides specialized, advanced pricing capabilities. They focus exclusively on optimizing pricing strategies using sophisticated algorithms and are tailored for this specific function.

2

Pricing Strategy and Adaptability

ERP Systems generally support basic pricing strategies with manual updates and rules-based adjustments. They're less adaptable to rapid market changes and typically require manual update intervention.

AI-Powered Price Management
employs dynamic and real-time pricing strategies, automatically adjusting prices based on market conditions, demand, and competitor actions. They offer a more adaptable and responsive approach to pricing.

3

Analytics and Insights:

ERP Systems include general analytics and reporting features which cover a broad spectrum of business data, including some pricing insights. However, these are usually not as in-depth or specific to pricing optimization.

AI-Powered Price Management
provides advanced analytics and predictive modelling specifically for pricing. They can forecast market behaviour, predict the impact of price changes, and suggest optimal pricing strategies based on deep learning and data analysis.

4

Automation and Efficiency:

ERP Systems handle various business processes with a certain level of automation, but pricing updates often require manual intervention and are subject to human error.

AI-Powered Price Management offers a high degree of automation, particularly for pricing adjustments. They reduce the need for manual updates, thereby minimizing errors and increasing operational efficiency.

5

Scalability and Customization:

ERP Systems are scalable across various business functions but may have limitations when it comes to handling complex, evolving pricing strategies. Customization is possible but can be broad and not as deep for pricing needs.

AI-Powered Price Management
is highly scalable and customizable when it comes to pricing. They can accommodate an expanding array of products and complex pricing structures, adapting as the business and market evolve.

In essence, while ERP systems provide an integrated solution for managing various business operations with basic pricing capabilities, AI-powered price management systems offer a focused, sophisticated approach to pricing. They bring advanced analytics, real-time adaptability, and a high degree of automation to the table, specifically catering to the dynamic needs of modern pricing strategies.

What is Price Scraping?

Price scraping is when automated web scraping tools or software extract pricing data from various e-commerce websites, online marketplaces, or competitors' websites. This data can then be analysed to inform pricing strategies and make better business decisions.

What is a Price Engine?

A price engine is a specialised software tool that determines the optimal prices for products or services by analysing various factors such as market demand, competitor pricing, cost of goods, and customer behaviour.It uses algorithms and data analytics to dynamically adjust prices in real-time, helping businesses maximise profits, improve sales, and remain competitive in the market. Essentially, it automates and optimises the decision-making process for pricing.

How to Scrape Prices from Websites?
  • Identify competitors
  • Determine the kind of data you want to collect
  • Pick a data scraping tool
  • Analyse the scraped data
  • Create a powerful competitive pricing strategy
How to Scrape Prices from Websites?
  • Identify competitors
  • Determine the kind of data you want to collect
  • Pick a data scraping tool
  • Analyse the scraped data
  • Create a powerful competitive pricing strategy

A Checklist to Determine if Pricing Software is the Next Step for you

To understand whether a price optimisation software is a good fit for your business, you can have a look at the following checklist. Read more about whether you should invest in a pricing software » or not.

E-commerce
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Airlines
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Fast-food chains
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Customise your pricing
strategy
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Use competitive pricing
intelligence
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Unlock seasonality insights
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PRICE OPTIMISATION SOFTWARE

Why Should You Invest in a Pricing Software?

Delivers rapid ROI:

Price Optimisation and Management software has been shown to deliver a rapid ROI when well-implemented and adopted.

Increases Profitability:

Gartner reports the following average outcomes for companies using these softwares: Revenue increases of 1% to 5% and margin increases of 2% to 10%.

Boosts Customer Lifetime Value:

Gartner also highlights that a pricing software increases in customer lifetime value of 20%.

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By choosing the right competitive pricing tool, businesses can gather valuable insights into competitor pricing strategies and develop data-driven pricing strategies that enhance their competitiveness, profitability, and market positioning.

A Checklist to Determine if Pricing Software is the Next Step for you

To understand whether a price optimisation software is a good fit for your business, you can have a look at the following checklist. Read more about whether you should invest in a pricing software » or not.

Revisit Operational Needs
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Large Historical Dataset
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Leadership Prioritises Pricing Strategy
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Currently Involved with Pricing
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Unorganised Price Data
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Aim to Adjust Prices on Time
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How To Optimise Prices in a Pricing Software

You can understand the elasticity nature of each product and category, consumer reaction to price changes and make informed decisions to develop a pricing strategy.

The Top 10 Pricing Softwares

Selecting the proper software solution for pricing can be tricky with so many different options available. we’ve compiled a list of well-known and lesser-known pricing platforms into a single, easy-to-read document to help expedite your search for the best solution.

PRICE OPTIMISATION STRATEGIES

6 Ways to Optimise your Prices

The optimal price points are subject to change depending on various factors like market trends, cost, inventory, and also other macro aspects. Take a look at the different pricing strategies that you can use to find optimal prices. »

Track and analyse your existing data around pricing and the relevant factors.

Define your overall goals for the organisation.

Define which KPIs to track to make sure your price strategy is working

Segment your prices and audience/offer tiered pricing.

Keep track of changes regularly and update your team.

Using pricing strategies to optimize margins.

PRICE OPTIMISATION TYPES

4 Kinds of Price Optimisation Software

AI-Based Pricing Software

AI-driven price optimization software uses algorithms to automatically adjust prices based on market conditions and customer demand. Black box AI is any AI system whose inputs and operations are not visible to the user. No black box, AI algorithms are explainable, and the business rules applied are visible to the user.

ERP Systems

Many ERP systems also include modules for pricing optimisation. Take a look at the different types of price optimisation software that could be helpful for your pricing goals.

Business Intelligence Software

Business Intelligence Software, just like ERP systems, can come with its own pricing modules. You can check out the top 10 pricing software and their functionality to understand the best pick for your business

Capabilities and Features of Price Optimisation Software

Based on where you are in your pricing journey, different features will be able to help you get your optimized price.

AI PRICING SOFTWARE PROCESS

Price Engine in SYMSON’s AI Software

In SYMSON, you can identify products that are price elastic and inelastic. It calculates price elasticity of your products based on historical data for different price cycles. It can then suggest optimal prices to ensure optimised profits. Using elasticity pricing, our algorithm studies the current prices and prompts you to adjust the prices based on your business objectives and strategic positioning.

Seamless Integration across 15+ apps

SYMSON allows easy integration with over 15+ apps enabling you to change product prices across multiple websites and platforms.

Combine different pricing strategies

SYMSON allows you to combine multiple pricing strategies to ensure optimal price points in any situation.

Smart algorithm Improves profit margins

You will receive real-time pricing suggestions based on proven economic models, micro and macro factors that ensure margin growth over time.

PRICING SOFTWARE INTEGRATION WITH DATA SYSTEMS

Data Systems and Features that your Pricing Software should connect to

While looking for pricing software, one should take into account the following data system integrations and features.

While looking for a pricing software, one should take into account the following data system integrations and features.

In SYMSON, besides the following top attributes, you can apply psychological pricing tactics, import and export seamlessly in your preferred file type and much more. Read more about what you can do with the Genius Dynamic Pricing in SYMSON.

Deriving insights from your pricing strategy: These patterns can give you insights into your profitability, sales, market dynamics and customer behaviour thereby giving you the most optimised price.

Taking prices of your competitors into account: Having a competitive pricing strategy, which takes into account the prices of competitors can give you that edge.

Using a pricing engine to improve and automate your pricing: A pricing engine allows businesses to manage their own pricing strategy by creating and combining pricing strategies to specific products.

Using pricing software to optimise your prices: Pricing software, such as that of SYMSON, helps businesses not only to manage their pricing but also to give advice on better pricing results with the help of AI and smart algorithms.

Adjust your parameters if needed and run the next price elasticity analysis.

Combining pricing strategies for better results: The more factors you take into account in your pricing, the more optimal your price. Combining multiple pricing strategies covers most bases.

How SYMSON’s Pricing Algorithm works

We created the algorithm with the help of Scientific Researchers from Erasmus University: bringing in scientific models, data science, and software engineering together in an AI platform where users can optimise product prices.

Gathers and Analyses Historical Product Data

SYMSON collects historical product data to calculate the price-elasticity, Key Value Items products, and other aspects to spot patterns and learn from the past.

Identifies the nature of your product assortment

Our system analyses your product assortment and identifies their price sensitivity for better categorisation. It then suggests the correct prices accordingly.

Allows to Customise the Algorithm to your Business

You can customise primary drivers like price elasticity, Key Value Items, margins, and more to your industry with customised drivers. Connect your data source to SYMSON to build your pricing strategy.

How SYMSON’s Elasticity 
Algorithm Helps Companies

How SYMSON’s Price
Engine Helps Companies

How SYMSON Helped WitwayGain a Competitive Edge in its Market

How SYMSON’s AI Pricing Tool Works

How SYMSON’s Competitive 
Pricing Helps Companies

Let’s you be flexible in pricing

SYMSON helps you set your own business rules and limit margin drop in case of automatic repricing- letting you set optimal prices without hurting margins.

Let’s you be flexible in pricing

Using smart automation, SYMSON lets you reprice products across many platforms in a whiff to stay competitive and relevant in the market.

Reduces Manual & Repetitive Work

Combine different strategies for different scenarios and find the optimal prices at any situation to boost profit margins.

How SYMSON’s elasticity feature helped La Place enhance their pricing strategy

What you can do with Genius Dynamic Pricing?

What you can do with Genius Dynamic Pricing?

How SYMSON’s competitive pricing feature helped 
INDI enhance their pricing strategy

Cut down time investment

SYMSON reduced manual work thereby decreasing time investment in a click of a button.

Speed of implementation

Fotocadeau.nl easily accomodated their products and quickly started using price optimisation in SYMSON.

Improved profit margins

SYMSON pricing algorithm predicted optimal prices and enhanced profit margins.

HAVE A QUESTION?

Frequently Asked Questions on Price Optimisation

Got a question? We're here to answer! If you don't see your question here, drop us a line on our Contact Page.

How to Choose a Price Optimisation Software?
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How to implement Price Optimisation effectively?
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Which Industries can use Price Optimisation Software?
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RESOURCES

The Next Steps on your Pricing Journey

We’d love to share some incredible resources that will help you further understand pricing strategy and give you the best head start on your pricing journey.