How Software Prices Your Groceries

May 24, 2014 in Daily Bulletin


Vlad Savov took a look at how supermarkets price their wares:

  • In the era of big data supermarkets are using information from loyalty card programs to figure out how much customers are willing to pay for items.
  • This data allows them to build complex and surprisingly accurate models that show what a change in pricing strategy will mean for profits.
  • The software can predict at what price point an individual will switch brands, and what incentives are required to make the customer switch to the bigger product.
  • The model has identified some quirky trends. An eight packs’ price affects the sales of four packs more strongly than the price of four packs affects eight packs.
  • Buy one get one free is a more profitable offer than a fifty percent price cut since customers will sometimes forget to get their one free product.
  • The software also evaluates how the price of one good affects the sales of another.

Read more about the system and how it works over here.

Source: The Verge