Price Optimization at Northern Group Retail

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Case Details:

Case Code : MKTG085
Case Length : 9 Pages
Period : 2002-2003
Pub Date : 2005
Teaching Note : Available
Organization : Northern Group Retail
Retail ing
Countries : Canada

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Price is the number one profit lever in any company."

- Daphne Carmeli, co-founder, president, and CEO of Metreo¹ in 2003².

"After a few early implementations estimating returns in the millions, companies are looking at pricing applications as a way to do the unthinkable in a sluggish economy: Grow profits by increasing revenue, not cutting costs."

- Kevin Scott, senior research analyst at AMR Research in 2003³.

"We've adopted a mentality that selling is not just about merchandising anymore. We're adding scientific tools to the human merchandising process."

- Michael Stanek, CFO of Northern Group Retail in 2003⁴.

New Software Begins to Pay

During the holiday shopping season in December 2002, Northern Group Retail (Northern Group), a major clothing and accessories retail chain based in Toronto, Canada, recorded an additional gross margin of $60,000 on the sale of its merchandize, courtesy, a new price optimization software that the chain had installed a few months earlier.

Traditionally, the chain would have marked down prices of some of its winter merchandize by 30 per cent in mid-December. However, the new software suggested going at full price, for some more time because it calculated that the merchandize still had demand potential at full price.

The management decided to take this advice and was able the sell the entire stock at full price, benefiting from the greater margins that the decision reaped.

Had they gone ahead with marking down the prices, their revenues would have been $60,000 lower. “Traditionally, companies mark down items before Christmas. The system told them, based on consumer demand, to sell at full price. They trusted the system and got a much more meaningful margin,” said Anthony Karabus, the CEO of Karabus Management Inc (Karabus), a retail consulting firm of Canada, which helped Northern deploy the price optimization software.⁵

Price optimization software was expected to help put the ailing Northern Group back on its feet. Although the Northern Group brands had good recognition and demand, the company was unable to make enough profits from them.

Price Optimization at Northern Group Retail - Next Page>>

1] Metreo Inc. aids industrial manufacturers in optimizing negotiated pricing for industrial products such as electrical control and power distribution equipment.

2] Emily Kay, Optimize Pricing to Maximize Profits, Solutions Frontline, September 1, 2003.

3] Emily Kay, Optimize Pricing to Maximize Profits, Solutions Frontline, September 1, 2003.

4] J. Bonasia, New Software Manages Price Cuts, www.khimetrics.com, March 2003.

5] Emily Kay, Optimize Pricing to Maximize Profits, Solutions Frontline, September 1, 2003.