Life Cycle Pricing Customized to Retailers’ Business Environments

A business consulting firm with practices grounded in econometric statistical forecasting, Revenue Management Solutions in Tampa, FL, has collaborated with more than 100 clients to develop strategies for the long-term profitability of their brands. Operating internationally, Revenue Management Solutions (RMS) provides business management advice and quantitative modeling tools to the hospitality and retail industries not only from its home office in Tampa, FL, but also from satellite offices in Paris, Singapore, and Tokyo. One of the business solutions services RMS offers to its retail clients is a life cycle pricing system that utilizes its proprietary demand-based statistical methodology to optimize profits by facilitating the dynamic adjustment of item prices at individual stores.

Life cycle pricing is not a static or ready-made pricing strategy; rather, it utilizes predictive models to modify price points over time in response to the specific environmental factors affecting business at a retail location. By performing quantitative analyses of customer purchasing behavior, this method forecasts the effect of price changes and drives profits through the implementation of pricing plans that are clear to the customer and maintain brand loyalty. Determining the optimal timing and extent of markdowns on merchandise is another dimension of life cycle pricing. Employing a real-time model to analyze weekly store sales and project performance of merchandise based on item, color, style, and other factors, life cycle pricing identifies ideal markdown dates and price points, allowing retailers to balance their inventory accordingly throughout the season.

As part of a life cycle pricing strategy, statistical analyses inform a retailer’s promotional campaigns. The impact of a promotional price campaign is determined using a total store modeling methodology to measure the effects on the individual items advertised, as well as all merchandise in the same category, across categories, and over all departments. Such considerations are crucial to maximizing the profits generated by a promotional pricing strategy, ensuring that other items and categories outside of the promotion are not negatively affected. This strategy also highlights the opportunities for a halo effect, wherein the sale of regular price items increases concomitantly.