Increase in Profit Margin Using Price Discovery Engine
Our client is Australia’s premier online kitchenware store and one of the largest specialty retailers of cookware and kitchenware. It has attained a special place in the Australia due to its expert advice & responsive customer service.
Increasing Revenue but steady Net income
Client’s revenue was increasing steadily over the years due to attractive offerings, higher investments in promotional activities and competitive pricing. But increase in revenue was not translating into higher net income as Revenue was driven by lots of discounts. Client’s management raised this concern when contacted Tavic and wanted to improve the Net income or in other words ‘profit margin’.
After conducting thorough study of Client’s offering, Tatvic suggested to carry out Price Discovery Engine (PDE) to find most optimal price for the products which can bring higher profit margins.
Price Discovery Engine is the scientific way of determining how much price can be increased for products, which will bring higher revenue for the products without affecting the demand. Client agreed with the idea as this is what they were looking for and it will directly bring additional profit to the store.
Tatvic carried out an exploratory research to identify 3 products on which PDE can be carried out. Factors considered in selecting these products were Product Revenue, Product demand and Stock availability.
Using LiftSuggest’s Price Discovery Engine, Tatvic implemented Price AB Testing on 3 shortlisted Products. In the AB tests, users see escalated price and success of the AB tests will be measured by tracking No. of Add-to-Cart conversion rate. If more number of users agrees to buy the product at escalated price, it proves that client can earn more revenue by selling the same product at a higher price.
Increased Profit Margins for Products
The test was run over a period of 15 days. From the results, it was evident that in two out of three product’s increase in the price did not affect the buying decision of the end user. In-fact, we observed an overall increase of 37.89% & 12.96% in the add-to-cart conversion rate for two products for 5% increased in the price variation.
(Product observed 37.89% increase in the Add to cart conversion rate when its price was increased by 5%)
(Product observed 12.96% increase in the Add to cart conversion rate when its price was increased by 5%)
Through PDE, our client was able to achieve higher profit margin for these products without affecting their Product Demand