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Price Optimization
Price
Optimization
Delivering automated price decisions
daily for grocery retailers
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Price Optimization
Price Optimization
Your Challenges
Pricing is a core strategic and operative component affecting
a retailer's profitability. Modern price decision-making processes
are characterized by leveraging immense data volumes while
considering multiple influential factors. For grocery retailers,
being able to implement strategic pricing techniques is key to
sustainable growth.
Grocery retailers must quickly respond to market pressures. Competition is continually
driving increasingly frequent aggressive price and promotion activities, to which grocers
respond with expanded new channels and more localized assortments. However, this
increased complexity makes it harder to handle prices right and often results in category
managers focusing only on key value items.
Grocery retailers need price recommendations at a granular level (per SKU, per store and
per day) with a strategic approach that sets them apart from competition and ultimately
helps them increase revenue and profit.
Challenges for grocery retailers
in changing market dynamics
Strategic goals
Prices not aligned with an overall pricing strategy,
supporting strategic KPIs such as profitability and
revenue goals
Market pressure
Competitor prices as an influencing factor for price
setting
Execution gap
Inability to harmonize inventory management goals,
such as stock levels, with pricing decisions
Complexity
Increasing variety of factors, including categoryspecifics, omnichannel competition, cannibalization
or cross-effects
Scalability
Inability to scale into highly individualized environments,
with specific assortments, promotions and sales channels
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Price Optimization
Our Solution for
Price Optimization
Up to
15%
Increase in revenue
Blue Yonder Price Optimization is a predictive
application that delivers retailers optimized pricing
decisions for every product, while improving
revenue and profits by more than 5%.
Ready for automation and scale, the solution measures the relationship
between price changes and customer demand, allowing a retailer’s
cost drivers and business strategies to be incorporated.
The solution considers competitors’ prices and other factors, such as
weather or inventory levels, to rapidly react to changes in the market
and adjusts prices automatically, for each product and store. Price
Optimization serves a retailer’s greater pricing strategy, providing a
measurable impact and return on investment in a short period of time.
Benefits
Optimized pricing decisions
Automated process
Self-adjusting approach
Strategic KPI alignment
5%
Improvement
in profit
20%
Reduction
in stock levels
Price Optimization
Increase profits
How Does Price
Optimization Work?
Increase revenues
Define
strategic
goals
Optimize stock levels
Daily calculation of optimized prices
• Full analysis of historical and current data that considers strategic goals,
pricing policy, current pricing rules, sales history and external factors,
such as competitive prices
• Determination and integration of individual price-demand elasticities
• Continuous optimization and testing using KPI-driven cost functions
Decision delivery
• Automated delivery of price decisions per SKU and store on a daily basis
• Continual self-adjustment via regular data updates
System integration
• Ready-to-use software as a service
• Central management of security and maintenance
• Automatic rollout of new features and improvements
• Easy integration into existing ERP and/or pricing systems via standard API
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Price Optimization
Price Optimization
Why is the Blue Yonder
Approach Different?
Traditional approaches implement general market beliefs about
price rules and customer behavior. Blue Yonder delivers daily
recommendations for thousands of products based on an accurate
measurement of price-demand relations. Our solution systematically
explores optimal prices, evaluates contextual factors and considers
product-relevant factors, such as product life cycle.
Important differentiators of our Price Optimization
solution are the level of granularity supporting
the price recommendation and the automatic
adjustment of prices to support your strategic KPIs.
Directly serving a pricing strategy, recommendations are optimized
using predefined strategic KPIs. Price Optimization results are verified
via rigorous testing as opposed to unfounded hypotheses, delivering
the best pricing decisions to a retailer on a daily basis.
Manual approach
Try
again
Drawbacks
Advantages
•Price test on- and offline
•Manual, cost-intensive process
• Ad hoc price changes
•Typically limited to a small
subset of SKUs
•Higher accuracy with the
measurement of price
elasticity
•Greater efficiency through
an automated data-based
process
•Continuous price optimization
•Scalable to all SKUs and stores
Blue Yonder
automated approach
Financial
planning
Choose
strategic KPIs
1
1
5
2
Demand
prediction
Selfadjustment
5
2
Daily
cycle
Weekly
cycle
Measure
impact
4
3
Decide
on price
Monitor
outcome
4
3
Measure
price-demand
elasticities
Automated
price decisions
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10
Price Optimization
2–6%
Solution Brief
A leading European grocery retailer boosts
profits and revenues with optimized prices
Increase in revenue
and profit
Region Europe
Challenge
• Local competition
• Category managers concentrating on a small subset of items
• Dealing with fresh and non-food assortments, local assortments
and package sizes
• Frequent price changes
Solution
• Daily price optimization covering pricing for more than 10,000
SKUs in different locations
• Price optimization is based on corporate strategy, balancing
profitability and revenue goals
• Category managers focusing on SKU/store price combinations
and simplifying pricing rules
Results
• Increased profits and revenues by 2–6%
• KPI-driven price optimization at SKU and store level
• Price delivery to all stores on a daily basis
Vertical Grocery
Solution Price Optimization
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Price Optimization
Price Optimization
Value Delivered
Speed to value
• Continual price updates on a daily basis
• Automation of pricing decisions delivers substantial
improvements in productivity and efficiency
• Low maintenance after initial setup, reducing time
spent on price management
• Rapid return on investment (within 3 to 6 months)
Retail domain expertise
• Broad sector expertise for multichannel retailers
KPI strategic alignment
• Prices set to achieve predefined strategic business
objectives by balancing KPIs, such as revenues or profits
• Delivery of prices for all product life cycles, from regular
sales to markdown
• Alignment of pricing policy and rules with consideration
to competitive strategies
Process benefits
• Leverages both internal data (historical and current)
and external data
• Machine learning algorithms that detect patterns and
understand the demand-price relationship at the most
granular level
Seamless integration
• Standard API integration with existing internal
ERP systems
• Manages the key challenges of integration, storage
and processing in one service
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Price Optimization
Price Optimization
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About Blue Yonder
Blue Yonder is the leading provider of cloudbased predictive applications for retail. Every day,
we deliver decisions to our customers that boost
revenues, increase margins and enable rapid
responses to changing market dynamics.
Our replenishment and pricing solutions are driven by sophisticated
machine learning algorithms developed by one of the largest teams
of PhD-level data scientists in retail.
Founded in 2008 in Karlsruhe, Germany, by former CERN scientist
Professor Michael Feindt, Blue Yonder now operates in Europe and
the United States.
We are backed by leading private equity firm Warburg Pincus and the
OTTO Group. In 2014, we established the Data Science Academy to
provide businesses with relevant data science know-how for retail.
Blue Yonder has been awarded the Gartner Cool Vendor Award 2015,
the Experton Big Data Leader Award 2016 and the BT Retail Week
Technology Award, among many others.
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Price Optimization
Blue Yonder
Best decisions,
delivered daily
Blue Yonder GmbH
Ohiostraße 8
76149 Karlsruhe
Germany
+49 721 383117 77
Blue Yonder Software Limited
19 Eastbourne Terrace
London, W2 6LG
United Kingdom
+44 20 3626 0360
Blue Yonder Analytics, Inc.
5048 Tennyson Parkway, Suite 250
Plano, Texas 75024
USA
[email protected]
blue-yonder.com