Within a company’s accounting system, a pricing engine acts as an instrument that helps to determine the price of specific items based on certain criteria. It is a software tool used by businesses to automatically determine the best product or service prices depending on various conditions. This system aims to help companies maximize their profits through price optimization.
What is a Pricing Engine?
A pricing engine—sometimes referred to as a price optimization system—is an automated tool businesses use to determine the best prices for their products and services.
It works by analyzing numerous different factors:
- Demand and supply of the item: Companies need to know what their competitors are doing and adjust their prices accordingly. They also need to have a clear understanding of market conditions and the sales cycle to determine what price point will bring in the most profit.
- Quality of the product or service: Higher quality items may warrant higher prices, depending on market demand. When companies offer several options and services, pricing engines can help ensure that all items are priced appropriately.
- Costs associated with production/service provisioning: To accurately set prices, companies must consider all costs associated with the production and sale of products/services.
- Customer segmentation: Different customer segments will have different levels of willingness to pay for a particular product or service. Companies may want to account for this when setting prices.
The pricing engine considers all these factors and provides businesses with the most optimal price for their items.
A pricing engine can be used in many different applications, including:
- eCommerce: eCommerce businesses can use a pricing engine to automatically adjust prices for items based on demand and other factors. This helps with providing customers with competitive prices while also maximizing profits.
- Retail: Retail businesses can use pricing engines to ensure their prices are competitive and appropriate at all times. It helps with price optimization across the whole store, ensuring that each item has an ideal price point.
- Hospitality and Tourism: Hotels, restaurants, and other hospitality businesses can leverage pricing engine technology to set prices for their rooms, food, and other services. This helps them cater their prices to the current market conditions and different customer segments.
- Software-as-a-Service (SaaS): SaaS companies can use pricing engines to set different pricing plans for their customers, helping them maximize profits while also providing customers with the best value for their money.
Pricing engines have become an essential tool for businesses that want to maximize profits while still remaining competitive in the market. By automating the price-setting process, businesses are able to manage their inventory better and increase their margins in the long run.
- Price Engine: The phrase “price engine” is used interchangeably with Pricing Engine.
- Dynamic Pricing Engine: Companies that have dynamic pricing need to use a pricing engine to help them quickly adjust prices for products and services and give real-time price calculations.
- Real-Time Pricing Engine: A tool that automatically adjusts prices in real-time. It constantly monitors the market and adjusts prices accordingly.
- Pricing Management Software: A pricing engine is a pricing management software that automates the price optimization process.
How Pricing Engines Automate Pricing
Pricing is a complicated process, and businesses need to factor in numerous different criteria when setting prices for their products or services. With a pricing engine, this process can be automated.
Using predictive analytics, a pricing engine can analyze data points such as demand, customer segmentation, costs associated with production, and competitive prices to determine the optimal price for each item.
This helps businesses set appropriate prices without having to manually go through each item individually—allowing them to adjust their prices and maximize profits.
The Benefits of Using a Pricing Engine
Businesses that use pricing engines realize several benefits. Particularly in the business-to-business (B2B) and eCommerce spaces, pricing engines can help businesses increase profits while still remaining competitive.
Here are some of the key benefits of using a pricing engine:
Manage Pricing Data
In the case of most businesses, data comes from multiple sources, including customer feedback, competitor prices, and market trends. And if a business sells on multiple platforms (e.g., website, eCommerce platform, mobile app, third-party retailers), customer data can be scattered across these platforms.
A pricing engine can help manage this data, ensuring that it’s all in one place and can be used to inform pricing strategies.
Improve the Customer Experience
81% of companies see a positive customer experience as a way to ensure competitive advantage, and customers feel the same way.
Since a pricing engine can help businesses set prices that are competitive and appropriate for the current market, it can improve customer experience by helping businesses give their customers price transparency.
Improve Pricing and Quote Accuracy
Inaccurate pricing and quotes lead to customer frustration, lost sales, and revenue losses. A pricing engine helps businesses improve accuracy by providing rules-based automated price calculation for each item or service.
This ensures that customers are given the correct prices when they shop or request a quote, which can be difficult when companies have complex pricing models.
Streamline the Selling Experience
AI-based pricing streamlines the sales channel, allowing sellers to create a frictionless sales process.
By using an automated pricing solution, businesses can create a uniform pricing strategy across multiple channels. This makes it easier for customers to purchase from their preferred channel, speeding up the sales process and improving the overall selling experience.
Analytics and Reporting
Advanced pricing software like pricing engines provides analytics and reporting capabilities. It gives businesses instant access to inventory availability, customer behavior trends, pricing anomalies, and more.
This helps businesses make data-driven decisions and take proactive steps to drive revenue and profits, instead of relying on guesswork or manual data entry for their pricing strategies.
A 1% improvement in price equates to an 11.1% increase in operating profit, assuming no volume loss.
By leveraging the power of pricing engines, businesses can gain insight into their pricing strategies and make informed decisions that will help them increase profits while still providing customers with competitive prices.
Features of Pricing Engines
Pricing engines come with a variety of features that make them powerful tools for businesses.
These features include:
- The ability to create rules-based pricing and discounts: Pricing engines allow businesses to create rules-based discounts and price lists. This ensures that customers are given the correct prices for each item, no matter where they shop or request a quote.
- Integration with CPQ: For complex business pricing needs, an integration between a pricing engine and CPQ (Configure, Price, Quote) software allows businesses to generate accurate quotes quickly.
- Data syncing across multiple channels: Pricing engines can sync pricing data across multiple selling platforms in real-time, so businesses don’t have to manually update prices each time the market changes.
- Price comparison visibility: A pricing platform that ties complex calculations to customer segmentation allows businesses to offer discounts and pricing models tailored to each customer or group, helping companies deliver competitive pricing.
Advanced analytics: Pricing engines have built-in analytics capabilities, so businesses can track customer behavior trends, identify pricing anomalies, and more.
People Also Ask
What is a real-time pricing engine?
A real-time pricing engine is a software tool that helps businesses automatically calculate prices and discounts in real-time. It enables businesses to create a rules-based pricing strategy, giving customers the correct prices for items or services.
How do you optimize your pricing engine?
Optimizing a pricing engine requires businesses to analyze customer behavior, identify opportunities and anomalies in the market, set competitive prices, and adjust prices accordingly. To optimize their pricing strategy, businesses should leverage data analytics and reporting capabilities provided by their pricing engine.