JDA Software Offers Data-Driven Strategies to Address Today’s New Pricing Reality

March 6, 2012 - PRLog -- Scottsdale, Ariz. – March 6, 2012 - Mobile and social media alerts have turned price transparency into price hyper-transparency. Especially in industries like travel and retail, the intentsity of price competition has never been fiercer. While businesses must guard against damaging their profit margins with unnecessary discounting, they also cannot afford to ignore competitors’ rates completely. Turning hyper-transparency from a threat into an opportunity requires a data-driven approach.

To quantitatively measure customer responses to price changes, competitive attributes and recurring patterns, JDA® Software Group, Inc. , The Supply Chain Company® offers the following guidelines:

•   Develop the right competitor set. An accurate competitor set, or “comp set,” can enable advanced software tools like price optimization to find the pricing “sweet spot” by identifying opportunities to price above or below the competition to maximise revenue.

•   Use score-based benchmarking. Applying score-based benchmarking can help to refine the comp set when identifying the attributes of a potential competitor’s products or services that most closely align with a company’s own.

•   Identify the closest substitutable alternative. The key to identifying the most relevant competitors is to find the closest substitutable offering from the customer’s perspective. It is important to create the most nuanced and accurate comparison matrix possible, rather than simply sorting competitors into broad categories based on product attributes.

•   Calculate a market reference price. An optimal pricing strategy requires an accurate comp set and an estimation of customers’ willingness to pay given comp-set prices. The market reference price is an important input and represents the prevailing comparison point that customers refer to when weighing alternative choices. In computing the market reference price, it is critical to take into account the dynamic nature of prices over time, compare the price of an offering across alternatives, and generate insight into demand elasticity.  

•   Quantify product strengths and weaknesses. In the hotel business, for example, factors such as an added service, better location or a new swimming pool can create a predictable price differential between two properties. It is possible to calculate a specific price gap at which two hotels would be considered equal in the eyes of a customer.

•   Take seasonality into account. In industries such as retail, hospitality, travel and transportation, seasonal changes may also affect the competitor set and market reference price. In these cases, a company must analyse price-shop trends by season to statistically identify the competitors with pricing strategies most similar to the company’s own — and adjust comp sets accordingly.

•   Start with clean data. Automated Internet price shops provide significant intelligence, but often screen-scraped pricing information must be carefully reviewed for accuracy in order to make informed decisions. It may be necessary to make assumptions to fill in data gaps as accurately as possible.

Compete More Effectively — And Profitably

Armed with a properly quantified competitive set and the latest price optimisation technology, a company can discover which prices and competitors are relevant and which ones can be ignored. “Elasticity analytics and revenue management have now intersected in the form of price optimisation, driven by real-time competitor data available via automated price shopping. It can work within a much wider range of industries than those traditional travel niches and is a key method to deal with price hyper-transparency,” said Bill Kotrba, vice president, industry strategy, JDA Software’s Pricing and Revenue Management Group. “Best of all, it helps any business to compete more effectively and profitably in this new pricing reality.”

To learn more, read, The Data-Driven Competitor Strategy, from the latest issue of JDA’s Real Results Magazine. For more information on JDA Pricing and Revenue Management, visit www.jda.com/revenuemanagement.

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About JDA Software Group, Inc.

JDA® Software Group, Inc. , The Supply Chain Company®, is a leading provider of innovative supply chain management, merchandising and pricing excellence solutions. JDA empowers more than 6,000 companies of all sizes to make optimal decisions that improve profitability and achieve real results in the discrete and process manufacturing, wholesale distribution, transportation, retail and services industries. With an integrated solutions offering that spans the entire supply chain from materials to the consumer, JDA leverages the powerful heritage and knowledge capital of acquired market leaders including i2 Technologies®, Manugistics®, E3®, Intactix® and Arthur®. JDA's multiple service options, delivered via the JDA® Private Cloud, provide customers with flexible configurations, rapid time-to-value, lower total cost of ownership and 24/7 functional and technical support and expertise.