Price and promotion optimisation is software that picks the price, the discount and the offer most likely to earn a retailer the most money, for each product in each store. It is also called price optimisation or markdown optimisation. A promotion is a planned offer for a short time, such as "buy two, get one free" or 20% off for one weekend. A markdown is a lasting price cut that clears stock that is not selling.
Until recently, a category manager set these prices in spreadsheets. A category manager is the person in charge of one kind of product, such as snacks or home décor. Today, models set prices for each store and each week, and some retailers change them every day. This is dynamic pricing.
The software works from one key number for each product: how much its sales change when its price changes. This number is called price elasticity. For example, if a 10% price cut raises sales by 25%, the product is very sensitive to price. If sales rise by only 3%, a price cut mostly loses money. The software estimates elasticity from past sales and past promotions, recorded by the retail POS. It then tries many possible prices and offers, and predicts the profit from each one with a demand forecast.
Say a home-décor retailer has 2,000 sets of LED string lights left in its stores after Diwali. Each set is priced at ₹499 and cost the retailer ₹250. The festive season is over, and the lights take up space that the stores need for winter blankets. The software compares three plans. Plan one keeps the price for two weeks, then cuts it by 50%. Plan two cuts it by 30% now. Plan three runs "buy two, get one free" for ten days. The software predicts that plan two will sell about 1,700 sets in three weeks and earn the most in total, because these lights sell much faster at a lower price. It also predicts that the last 300 sets will need a bigger cut in January. The category manager approves plan two for most stores. In three stores where the lights are still selling well, the software keeps the full price.
The software also reads what rivals charge, from competitor price monitoring, so that the retailer's price is not far above a rival's price for the same item. It uses the season plan from merchandise planning to know how much stock must be cleared, and by when.
How is it different from B2B pricing software? B2B pricing software suggests a price for one business customer, in one negotiation. Retail price optimisation sets one shelf price that every shopper in a store sees.