The objective
The complex objective that 11teamsports has for the prudsys RDE is made up of three aspects:
- The sporting goods retailer seeks to intelligently control the pricing of all products, thereby increasing its margin, revenue and number of orders.
- The company would like to fix all 400,000 variants (sizes and colors) of its 24,000 products with different prices, which requires the pricing solution to have maximum scalability.
- 11teamsports would like to take the burden off category management: automatically pricing all products leaves more time for strategic decisions on products and product ranges.
The AI solution should be able to take various factors into account such as demand, variable inventories, brands, clicks per size or end of life cycle. 11teamsports’ requirement was to find a pricing strategy that forced the sale of products while keeping the margin in clear focus.
The solution
The prudsys RDE automatically adapts the prices of the 400,000 product variants to all relevant contextual conditions on a daily basis. Real-time tracking ensures that the demand is measured on the product level and included in the price calculation. This way, the prudsys RDE can predict out-of-stock situations in a timely manner and take this into consideration in the pricing process.
Product life cycle represents the particular challenge in price calculation. At the beginning of the life cycle the prudsys RDE optimizes prices primarily for margin and revenue. As it nears the end of the life cycle, the sell-off method takes effect, focussing on gross profit absorption. The challenge: Some products are only in the range for a few months, others for up to three years. The prudsys RDE manages a balancing act between targeted sales and attaining the KPIs set by 11teamsports by implementing these two pricing strategies:
1. Margin and revenue optimization
If a product is new to the range or at the beginning of the product life cycle, the pricing strategy focuses on increasing margins and revenue. Demand-driven, the focus is on skimming off enough income and revenue to achieve the specified average target margin in the different product ranges. The result contributes in particular to the goal of 11teamsports, to remain solvent and competitive.
2. Sale optimization
The goal of the markdown pricing strategy is for products with an advanced product life cycle to reach zero inventory by a defined target date. For each individual product, the algorithm detects the extent of the demand and controls the sale via price while creating gross profit per item at the same time. The AI solution calculates the optimal pricing for each individual item, in each size, along the entire product life cycle until the defined sell-by date.
11teamsports’ category management determines which parameters are incorporated into price calculation. It also decides the range in which the prudsys RDE can calculate prices by setting variable price limits according to product age.
11teamsports uses the prices calculated by the algorithm online in its regional shops in Germany, Austria and Switzerland, at kickershop.de as well as for its bricks and mortar stores.
The result
In the A/B test the combination of margin and revenue optimization turned out to be an optimal global pricing strategy with the sell-off method. Compared to manual pricing, 11teamsports has been able to increase its margin and revenue while simultaneously increasing the order rate by 3%. Thanks to price automation, category management is left with more time for strategic price management tasks. Due to this success, 11teamsports has been relying on prudsys since 2017. The company is planning for future application scenarios for dynamic pricing.
