Innovation And  Technology Influence Retail Pricing

Adoption of Price Optimization Software. Information management and supply
chain management helped by technological advances have driven retailers’ costs
down. In the 1990s, supply chain tools helped improve efficiencies in the flow of
goods, but did not always ensure that retailers had the right merchandise in the
right stores at the right price and at the right time. Retailers traditionally relied on
rules-based pricing decisions, such as a percentage markup or seasonal pricing
(see also chapter by Simon, Gathen, Daus in this book). More recently, retailers
have embraced optimization methods, such as retail merchandise optimization,
price optimization, retail revenue management. Price optimization software predicts
demand for individual products based on historical price and sales data,
competitive pricing, local demographics, inventory, and promotional data .
Today, retailers are challenging traditional “rules” of pricing with prices generated
from statistical modeling and data mining. The use of price optimization
software has increased gross margin dollars on markdown items for many retailers.
Price-optimization software can also help retailers manage nonnegotiated
prices on seasonal items, recommending when prices should be reduced and when
products should be sold at full price.
Pricing Implications for Different Retail Formats and Stores. The shift toward dataand
technology-driven pricing approaches, as opposed to approaches based on “experience”
or “hunches” has been a cultural change for many retailers. Retailers may
feel they are losing control when prices are set by computer software. Some retailers
are still relying on a blended centralized, rules-based pricing strategy. One argument
against price optimization is the potential negative effect on market share. Many
retailers fear that the differences in prices across items within a product line (i.e.,
flavors) may confuse the consumers and possibly drive down sales.