LARCHMONT, N.Y. -- D'Agostino Supermarkets here is implementing a new price optimization software program it hopes will improve profits as well as customer relations.
Nicholas D'Agostino III, vice president of corporate administration, told SN the new program will be rolled out to all 23 stores over the next 10 months.
The rollout follows a successful eight-week test in 10 stores of the Price Center software from San Francisco-based DemandTec.
"This kind of solution puts you in a position to make the customer happier, but at the same time makes you more money," D'Agostino explained.
"The golden rule has always been that you prefer not to raise prices; you prefer to improve the mix.
"If I can convince someone to buy orange juice, or buy the orange juice that makes me more money and satisfies their needs, I'm better off. I still have an orange juice sale and they're still buying orange juice," he added.
The retailer's agreement with DemandTec ended a search by the grocery chain for a price optimization solution, D'Agostino said.
The new system, D'Agostino said, will help stores optimize their pricing on an item-by-item, store-to-store basis, which will ultimately improve not only their bottom line, but customer service as well.
The price optimization solution allows the chain to let its customers drive the prices on the shelf, industry observers said.
It's a big change from traditional approaches where price was driven by the manufacturer or the retailer, D'Agostino added.
"At the end of the day, I think [this approach] is going to help you get a better gross margin, so you're going to be better positioned," D'Agostino said.
"Obviously, it's always good to have the lowest cost, but one thing that we will be able to do, that is harder for a bigger chain, is to be more flexible with this system and take advantage of all the facets of it," he explained.
The new system enables the retailer to drive in-store traffic from less-profitable items to more-profitable items, while still lowering prices storewide, he explained.
Convenience, not price, is a big driver for D'Agostino's, he explained.
Ultimately, he said, the program will be important in determining not only the proper pricing across categories, but the proper assortment of products.
The old methods of price manipulation to drive in-store traffic where a retailer wanted, D'Agostino said, were to simply raise prices because that was all you could do based on the available information.
But in that solution no one knew what to raise prices to or if it was successful, he said.
"This system lets you know what is happening before it happens," he said
While he declined to comment on how much the Price Center solution would cost stores, D'Agostino said it was not a prohibitive amount.
The largest cost he anticipated will be paying someone to monitor the transfer of information between the retail locations and DemandTec.
The retailer will have minimal work to do on its programming, he said.
Moreover, in the long run it could end up saving the chain money based on ROI projections it anticipates. He did not provide any further details on that.
The information provided by Price Center could potentially help smaller retailers position themselves better against a larger chain that can rely on the scale of its purchases to drive prices down, industry observers said.
The detailed information provided through price optimization allows a smaller retailer to align the prices of products accurately with the preferences of its customers, which in the long run affect profitability.
With this new system, data on point-of-sale purchase history, product attributes, promotions and competitor prices are combined with a mathematical formula to determine the optimal price for individual items.
The importance of price, promotions and assortment is available for every item a retail store carries.
Bottom-line impact can be measured in weeks, not years, industry observeers said.
On the larger scale, the new system combines consumer response modeling approaches, activity-based costing and optimization techniques in a computing solution that retailers can tailor to their particular needs.
Retailers set the parameters of the reports they receive so the information fits their specific needs.
Price Center is available either as a software program or online in a hosted environment. It requires its own operating system.