Bottega Verde, Italy's largest natural cosmetics and beauty products company, has realized a 16 percent increase in catalogue orders and a nearly 25 percent increase in total net contribution since it began use of Price Optimization software from Teradata, a division of NCR Corporation. The results are significant for retailers interested in increasing profits without losing customers and for those facing broad market changes that affect pricing. Bottega Verde has more than 250 stores throughout Italy, an established catalogue offering and a growing eBusiness division. Bottega Verde is currently using Price Optimization to adjust product prices and inventory levels in its stores.
The Teradata Price Optimization software facilitates pricing by analyzing detailed basket level data over a period of time. By combining information from product assortment, promotional and other available data, it provides a statistical basis for pricing decisions and makes it possible to track the influence of pricing on consumer behavior. The application identifies the range for price adjustments for each product based on price elasticity, substitution and cross-selling effects, as well as margin and sales volume factors.
The September 2005 Teradata Price Optimization pilot at Bottega Verde analyzed the impact of pricing on the items offered in the catalog. In many cases, the optimization software lowered item price, reducing per-unit gross margin. For nearly 10 percent of the products, the software actually raised the product price. As a result, gross sales increased by nearly 15 percent and total gross margin increased by more than 11 percent. The sales comparison was made against catalog sales where prices were set by product managers.
The detailed level of analysis, the extensive price changes that were made and the significant results to the bottom line are particularly important for retailers in highly competitive situations or for those facing vast market changes. In Germany, where the value-added tax (VAT) is expected to increase next year, Teradata Price Optimization software will help companies to realign prices for large parts of their product lines. The raise in German VAT from 16 percent to 19 percent scheduled for the beginning of 2007 is a concern for retailers.
The catalog is just the first sales channel to realize price optimization at Bottega Verde. "Price Optimization in Bottega Verde is strictly linked to another important project assigned to Teradata: inventory management, as well as pricing of all the offers made within a selling period, both in shops and through our mail-order channel," said Bottega Verde CEO Paolo Lavino. "It will be critical that the business information is correct and coherent across the BV Shops, mail order, Internet and telemarketing channels, and for all business users from product managers to the management goods office."
The inventory management project will also propose appropriate stock levels to product managers for the selling period, the channel, and across other variables such as geographical area, shop location and size. When this project is completed, the results can be used to further improve results from Teradata Price Optimization.
"Automating the process of setting prices and inventory levels will have positive repercussions on work quality and quantity because we will realize significant time savings. The estimate is we will save a minimum of 30 days of work per month. Those valuable resources will be freed up to be involved in other important tasks," Lavino said.
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