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Case study: Determination of price elasticity

The fashion industry is known to be especially price sensitive. Demand and inventory levels are largely dependent on pricing policies. Optimal pricing is therefore an important factor for economic success. In one project, COSMO CONSULT developed a mathematical model to determine price elasticities of individual products. Today, the information helps the company to optimize initial prices, discounts and marketing campaigns. In addition, the sale of products can be predicted with more accuracy with price cuts.

Key Facts

  • Determining the best prices to maximize profits
  • Optimizing discounts and marketing campaigns
  • Providing input for dynamic pricing

Initial situation

Price setting is a crucial topic especially in the fashion industry with strategic (initial prices, price levels) and operational significance. Optimal pricing helps increase the demand and reduce the existing stocks at a faster rate. Unfortunately however, the effect of price setting is not systematically recognized or used in many companies. Instead, fixed price lists or copies are often used to set prices. In addition, other influencing factors, such as the different demand behavior of individual customers, are often disregarded.

COSMO CONSULT was commissioned to develop a model to determine price elasticities while taking into account external factors. Subsequently, it was planned to test the model in further studies.

Approach

Based on the sales history, it was necessary to calculate the empirical price elasticities for each individual product. Therefore, a large number of other parameters and underlying conditions were taken into account: In addition to seasonal effects, especially during events such as Christmas or Easter, special offers played a crucial role and thus found their way into the model. Based on all available data, price elasticities could be calculated for each individual product and product group, which were then used for price setting.

The algorithm, which was developed and implemented using C ++, was able to automatically and flexibly parameterize the calculation of price elasticity.

Additional benefit

With price elasticities, companies can benefit from a much clearer view of the overall pricing. The information can be used for targeted discounts and marketing campaigns and serve as a basis for optimizing the initial prices. In the context of dynamic pricing, you can also predict the sale after a price cut.

Ask our experts

COSMO CONSULT has many years of experience in providing digital solutions in the field of data science. Our services are based on a clear approach, detailed knowledge of business processes, and excellent product expertise. Our experts will be happy to advise you on the unique possibilities available to you when you use modern software technologies. Please give us a call! We look forward to talking with you on how your business can enter the digital age.

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