Sales and promotional discounts let retailers reach pools of customers that value the same product differently. Modeling the pool of potential buyers, and how it changes over time, lets you optimize how and when sales and discounts are applies. This presentation provides a hands-on demonstration of modeling the pool of potential buyers, and using Excel’s Solver tool to optimize revenue from that shopper pool by manipulating price.
2. Sales Rationale
•Different shoppers value the same product differently
•Pool of potential buyers changes over time for durable goods
•When pool is mostly people with low valuation of product, charge a lower price (sale) to support total product sales
•When pool is mostly people with high valuation of product, charge higher price to maximize profit
3. Example Sales Model
•Target’s private-label yoga pants
•Model 18 months of sales
•Shoppers divided into 3 price pools:
•$24.99 (MSRP)
•$19.99 (Promotion)
•$14.99 (Sale)
•Pool of 18,000 potential buyers
•Equal number of buyers at each price level
4. Example Sales Model
•1,000 new market entrants each month at each price point
•Half of potential buyers actually purchase each month
•Implication: Anyone who values pants at less than the current price is going to potentially purchase them
5. Create data table for the 3 price points & their associated price codes