In the wake of the Covid-19 pandemic and the rise of e-commerce, competition in retail has never been fiercer. Today’s cost-conscious consumers can compare prices with just a click, and retailers face unprecedented transparency and scrutiny. Price too high, and you risk losing the sale; price too low, and you leave profit on the table. In this fast-paced environment, where market dynamics shift in real time, price optimisation software has become an essential tool for retailers to stay competitive, react swiftly, and protect their bottom line.
What is Price Optimisation Software and How Does it Work?
Price optimisation software allows businesses to dynamically manage and adjust prices, directly impacting their bottom line. By ingesting a multitude of inputs and applying rules or elasticity models, the software generates suggested prices aligned with a company’s specific objective – whether it be to maximise profits, capture market share or get rid of the all the winter jackets before the summer season arrives.
At the core of these solutions lies the ability to analyse vast amounts of data. This includes internal data, such as product metadata, stock levels, margins, price history, and transaction logs, typically pulled from ERP and PIM systems. Additionally, competitive intelligence is integrated, comparing current and historical competitor prices on a like-for-like basis through EAN (European Article Number) and SKU (Stock Keeping Unit) scraping. The most advanced solutions go even further, accounting for contextual factors, such as weather, seasonality and emerging consumer trends.
Pricing is both an art and a science, and the true value of price optimisation software lies in its ability to transform inputs into actionable pricing strategies. At the simplest level is a basic rules-based approach. For example, for the top 5 best-selling products, be the cheapest in the market without sacrificing profitability. As sophistication increases, rules evolve into complex logic trees, akin to an overzealous intern’s labyrinth of nested IF statements in Excel. At the highest level, rather than applying rules to inputs, the software instead shifts to an outcome-seeking approach. The most sophisticated providers, often AI/ML-enabled, create vast tables of forecast scenarios for each product, analysing historical data to calculate elasticities and ultimately determine the profit-maximising price.
Fig. 1: Price Optimisation Overview
Illustrative. SOURCE: Fairgrove Research; Market Interviews
Who Are the Users and What Are the Benefits?
Basic pricing optimisation and management software typically begins to become relevant when potential customers become larger than €10m revenue, >50 employees or >1,000 SKUs. The customer spectrum extends all the way to enterprise-sized customers, such as multi-billion euro brands and retailers, predominantly served by sophisticated price elasticity solutions, which require data-rich logs of historical transactions.
The primary decision-makers that software vendors need to win over are typically the users within pricing and sales departments. The benefits of pricing software vary depending on the maturity of the pricing team. New adopters often seek to move beyond subjective decision-making by embracing a data-driven, analytical approach. For these teams, the ROI is often measured by the FTE time savings and efficiency gains achieved through a more streamlined process. By contrast, more mature pricing teams focus on the software’s ability to deliver a direct and measurable impact on revenue and profitability across their product portfolio.
What Are the Different Types of Software?
Consumer retail is particularly well-suited to price optimisation, especially in sectors like fashion, health, cosmetics, home decor, electronics, and sporting goods, where products are easily identifiable, comparable, and relatively homogeneous. Software offerings in this space range from basic competitive intelligence and scraping tools to more advanced rules-based pricing management, and at the highest level, AI/ML-driven elasticity price optimisation solutions.
Beyond consumer retail, other specialised types of pricing software cater to the unique needs of different industries. For example, B2B retail requires complex pricing models and customer micro-segmentations, considering factors such as annual volume discounts, loyalty programmes, and rebates. In service industries, configure-price-quote (CPQ) software plays a crucial role in managing tailored offerings. Vertical-specific offerings also exist – airline ticketing is perhaps the most infamous, where prices shift with demand, perpetually climbing each time you revisit the page, especially if you haven’t cleared your cookies or used a private browser!
Fig. 2: Pricing Software Market Overview
Illustrative; Non-Exhaustive. SOURCE: Fairgrove Research; Market Interviews
How Much Investment Activity Has There Been in the Market Recently?
The pricing software ecosystem has seen significant investment activity, with both trade and private investors making strategic moves to capitalise on this growing market. Recent investments reflect a strong interest in expanding service offerings, entering new geographies, and driving organic growth, underpinned by the increasing digital maturity among businesses and consumers, as well as a rising awareness of the value that pricing optimisation software can bring.
Fig. 3: Selected Investment in Pricing Software
Illustrative; Non-Exhaustive. SOURCE: Crunchbase; Fairgrove Research
Conclusion
In today’s fast-paced, competitive retail market, price optimisation software is no longer just a nice-to-have — it is a critical tool for retail businesses striving to maximise profitability and market share. For investors and businesses alike, the value proposition of price optimisation software is clear. As the retail and e-commerce landscapes become increasingly sophisticated, the ability to dynamically adjust prices in response to real-time data is a powerful advantage.
Our Experience
If you would like to discuss this article or are considering growth or investment in pricing software markets or other areas in which Fairgrove has experience, please contact Paddy Woods Ballard or Bhavna Dewan.
