In the first part of our series “Price optimisation for online retailers: How to improve your competitive position with intelligent price management”, we described the status quo of online retail in Germany. In the second part of our article series, we will be discussing the challenges and benefits when using an automated software for price optimisation.
Challenges of an intelligent price optimisation tool
The most important technical challenges to be mastered by online retailers in intelligent price optimisation arise in the acquisition and integration of data, in the detailed adaptation to the retailer’s individual requirements and in the accomplishment of complexity and security demands.
The acquisition of external data relevant for price optimization takes place using the so-called crawling procedure. The aim of crawling is to search through the relevant Internet sources, such as online shops, marketplaces and price comparison portals for comparable offers. Problems can arise here from occasionally enormous data volumes, as well as changes to website and URL structures on the external sites.
A reliable comparison of your own product prices with competitor offerings and a corresponding analysis of product overlap and price developments requires a reliable association of the competitor offerings found to your own products. In this so-called matching procedure, the challenges lie in the often differing designations for identical manufacturers, products and characteristics (“HP” vs. “Hewlett-Packard”, “laptop vs. notebook”, “royal blue vs. königsblau” etc.). Missing or erroneously entered EAN/GTIN numbers can also present a problem.
Overcoming this complexity is one of the biggest challenges facing intelligent price optimisation solutions. It arises through enormous data volumes and the implementation of multi-layered market strategies. This complexity can be overcome with the help of extensive configuration options, which online retailers use for adaptation to their own pricing strategies. Individually adjustable and scalable rules, filters and price limits will offer the ability to optimise prices accord-ing to certain parameters and on the basis of the individual retailer’s pricing policy.
The user-friendliness of these settings, which should be simple and clear to apply, also plays an important role. An ability to undertake changes to the software simultaneously amongst several users also presents a challenge. The discrepancy between complexity requirements, on the one hand, and simplicity for the user on the other, is a fundamental problem in the development of comprehensive software solutions to price optimisation.
Time-related aspects in intelligent price optimisation are similarly significant. In online retail, prices change much more frequently than in stationary businesses. A weekly, if not daily, update of product data and prices is a basic requirement for rapid reaction to alterations amongst the competition.
Furthermore, the security factor is of enormous significance. The reliability of the calculations and protection of the retailer from price spirals should always be paramount. Control of individual prices must always remain in the retailer’s hands. In the ideal situation, an automated price optimisation should never make arbitrary price alterations, but instead offer price suggestions which can than be adopted quickly, straightforwardly and securely into the merchandise management systems.
The combination of these challenges transforms the inhouse development of a fitting solution into a mammoth task. With the use of a standardised software, resources can be saved and time advantages created over the competition. This in turn raises the pressure on other market players so that intelligent price optimisation in rapidly growing eCommerce will become obligatory in the medium to long term.
Online retailers: Successful benefits in the use of tools for price optimisation
Price optimisation using an automated software solution offers many advantages to online retailers:
Intelligent price optimisation significantly reduces the internal manual resources devoted to price-setting. All the necessary competitor data for a dynamic adjustment of prices is supplied so that fewer personnel and financial resources remain tied up. The data concerned originates from as many sources as desired, so that a comprehensive, cross-channel and cross-market analysis is assured.
Detailed, up-to-date information creates market transparency and puts operators of online shops in a position to react rapidly to price alterations among competitors and thus harness valuable potentials. By means of long-term histories and qualitatively valuable data, online retailers can oversee the strategies of various market players and draw early conclusions for their own pricing strategies.
Individually configurable software models make it possible to adapt the price optimisation to the strategic business focus. Scaleability further leads to the software “growing linearly”. When the quantities of merchandise and data increase over time, then an adaptation can easily be performed. Pricing strategies are therefore automatically implementable and expandable, even for hundreds of thousands of products.
Negative effects such as price spirals, which cannot be precluded even with a very thorough and manual price adaptation, are avoided in automated price optimisation through the use of various protection and warning mechanisms. With the help of security settings, price fluctuations, excessive price differences and stock levels can thus be incorporated into the price optimisation. The control over price management always remains in the retailer’s hands.
Even when the listed challenges to using a software for price optimisation initially predominate, its technological contribution to pricing is always worthwhile.
In the next installment of the article series, you will learn why you should always keep a close eye on your market and how pricing tools assist you in price observation on the Internet.
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