Sales and promotional discounts let retailers reach pools of customers that value the same product differently. Modeling the pool of potential buyers, and how it changes over time, lets you optimize how and when sales and discounts are applies. This presentation provides a hands-on demonstration of modeling the pool of potential buyers, and using Excel’s Solver tool to optimize revenue from that shopper pool by manipulating price.

1. PRICING ANALYTICS
Optimizing Sales Models

2. Sales Rationale
•Different shoppers value the same product differently
•Pool of potential buyers changes over time for durable goods
•When pool is mostly people with low valuation of product, charge a lower price (sale) to support total product sales
•When pool is mostly people with high valuation of product, charge higher price to maximize profit

3. Example Sales Model
•Target’s private-label yoga pants
•Model 18 months of sales
•Shoppers divided into 3 price pools:
•$24.99 (MSRP)
•$19.99 (Promotion)
•$14.99 (Sale)
•Pool of 18,000 potential buyers
•Equal number of buyers at each price level

4. Example Sales Model
•1,000 new market entrants each month at each price point
•Half of potential buyers actually purchase each month
•Implication: Anyone who values pants at less than the current price is going to potentially purchase them

5. Create data table for the 3 price points & their associated price codes

6. Make the table a range named PriceCodes

7. Enter trial price codes for each of the 18 months in our model

8. Enter price lookup formula: =VLOOKUP(B7,PriceCodes,2)
Accept formula

9. Select handle at bottom right of formula cell, then drag down

10. 3,000 shoppers will purchase at each price point

11. 3,000 shoppers won’t purchase at each price point

12. Buyers = Previous Nonbuyers + (Previous Buyers – Previous Sales) + ½ Previous Sales + ½ New Shoppers

13. Nonbuyers = ½ Previous Sales + ½ New Shoppers

14. Enter formula for MSRP buyers:
=E7+(D7-J7)+0.5*J7+0.5*1000 Accept formula

15. Select handle at bottom right of formula cell, then drag down

16. Enter formula for MSRP non-buyers:
=0.5*1000+0.5*J7
Accept formula

17. Select handle at bottom right of formula cell, then drag down

18. Enter formula for promotional buyers:
=G7+(F7-K7)+0.5*K7+0.5*1000 Accept formula

19. Select handle at bottom right of formula cell, then drag down

20. Enter formula for promotional non-buyers: =0.5*1000+0.5*K7
Accept formula

21. Select handle at bottom right of formula cell, then drag down

22. Enter formula for sale buyers:
=I7+(H7-L7)+0.5*L7+0.5*1000 Accept formula

23. Select handle at bottom right of formula cell, then drag down

24. Enter formula for sale non-buyers: =0.5*1000+0.5*L7
Accept formula

25. Select handle at bottom right of formula cell, then drag down

26. Enter cell reference for MSRP unit sales:
=D7
Accept reference

27. Select handle at bottom right of formula cell, then drag down

28. Enter conditional for promo unit sales: =IF(C7 <= $F$4, F7, 0)
Accept formula

29. Select handle at bottom right of formula cell, then drag down

30. Enter conditional for sales unit sales:
=IF(C7 = $F$2, H7, 0) Accept formula

31. Select handle at bottom right of formula cell, then drag down

32. Enter formula to calculate monthly revenue:
=SUM(J7:L7)*C7
Accept formula

33. Select handle at bottom right of formula cell, then drag down

34. Enter formula to calculate total revenue:
=SUM(M7:M24) Accept formula

35. Launch Excel’s Solver tool

36. Maximize
Total Revenue
Monthly Prices
Choose Evolutionary solving method

37. Click Add button

38. Monthly price codes Less than/equal to
3 Click OK

39. Click Add button

40. Monthly price codes
Greater than/equal to 1
Click OK

41. Click Add button

42. Monthly price codes Must be integers
Click OK

43. Click Solve button

44. Click OK button

45. ~ $8.74 million in total sales
Promotional pricing not used in optimal solution