Information technology has made its mark in many industries beyond those that work specifically with technology. The automotive industry is an example of a business sector that has changed due to IT. The auto industry has always been among the most innovative. Mass production and Six Sigma are both practices that have been most highly championed by car manufacturers. Now, software has ushered in another set of changes that focus on price optimization.
What is Price Optimization?
Price optimization is the process of finding the optimal price for a company’s products or services. It is a series of equations that attempt to predict how a customer base will react to slight price changes. Those changes can go up or down. For the company, the ideal scenario is a high final price and no change in demand. In reality, not that many customers are willing to pay the bumped up price especially if there is a competitor selling at the cheaper price exists.
How Does Price Optimization Impact the Auto Industry?
Consumers know that a car is a hefty investment. There is not that much difference between paying $20,000 or $21,000 for a vehicle, but increments of $5,000 do require more consideration. For you, the manufacturer, the price you set on your vehicles is a combination of the costs involved in building the car and the profit per car you would like to make. Price optimization is how you find that optimal point. Since the cost of a car by make, model and brand is similar to its competitors, the industry as a whole seems to set a standard that everyone follows. So, the task is remaining within range of the competition but still making a sizable profit.
What Price Optimization Solutions are Available?
For many years, computers with strong-processing power were used to crunch the numbers and find several pricing scenarios. Today, all that computer power can be completed with software. It helps to have professionals on your team who are comfortable with math and these types of calculations. Once software delivers the reports you are seeking, you still have to analyze the data.
What Software is Available for Price Optimization?
There are several software programs that focus on price optimization. For the auto industry, software that helps with auto parts pricing is best. These features take into consideration all the elements that go into building a vehicle like the raw materials. Your customers see the final product, but they do not know that the rubber, sheet metal or paint that went into the car was purchased at different prices. In many cases, the price of labor is fixed. The price of the raw materials, however, can fluctuate. The best software is intelligent enough to help you compute with these fluctuations.
What are the Benefits of Integrating Price Optimization Software?
Integrating price optimization software offers several benefits. When the cost of the raw materials used to build a car vary, it is more difficult to pinpoint your exact profit on every vehicle. Sometimes, the price the vehicle was sold for varies, too, so you have to take that into consideration as well. Software gives you a tool that almost perfects the pricing process and is easily at your disposal.
What Else Does Price Optimization Software Provide?
While you do not have to follow all the suggestions of software, you can at least use them for guidance. Additionally, you have the opportunity to gain insights into the market and your company. The data may show you that the fluctuation in the prices of the raw materials actually runs in cycles. With this information, you can plan your purchasing in advance. If you can get ahead of the curve, you can end up saving in the long-run, which will give your profits a boost. Not to be forgotten, pricing software also gives you control. Instead of letting costs get away from you, you remain in control by being able to forecast. The economy is also affected by what is happening between the leaders of the world. This knowledge also provides a real edge.
Software is not a magic potion. It is a great tool that you can use to gain insights, though.