The Parker Avery Group recently partnered with Prognos, an Antuit company, on a pricing elasticity project that helped a retail client realize measurable value at every step of the process.
We were initially asked to help the client select pricing software, but discovered that their data wasn’t quite ready for prime time yet. Instead, we recommended concentrating on base price, and counseled them on how to manipulate it so net prices would be more optimal.
Multiple live offers, web-only promotions, email-based incentives, different discount levels—this midsized, multi-brand catalog and online retailer routinely manipulated pricing to shape demand. But because the promotions were largely customer- rather than merchant-directed, they didn’t really have control over pricing; in fact, the items they thought were traffic drivers had some of the lowest elasticity in the assortment.
We conducted a pricing elasticity pilot of about a dozen items. First, we used a rigorous process to determine multiple control items to get a read on lift. We then measured elasticity for an entire brand and made pricing recommendations.
The client put the recommended changes into effect: Within two quarters, they saw noteworthy increases in both revenue and margin, while keeping an eye on inventory levels. The test items drove $172k more in margin, $253k in additional revenue, and nearly 8k more unit sales than they would have before the recommended price changes.
Focusing on price elasticity helped the client reap significant value even before beginning the lengthy process of selecting a pricing solution. Now, when the roadmap leads to the eventual pricing software implementation, they will have a much better understanding of what’s needed for success in their environment.
ABOUT THE BLOGGERS
Joshua Pollack, The Parker Avery Group and Sam Iosevich, Prognos (an Antuit Company)
Josh is the pricing practice leader at The Parker Avery Group; Sam leads Antuit’s demand analytics engagements.