Demand optimization is the application of processes and tools to maximize

return on sales In business, operating margin—also known as operating income margin, operating profit margin, EBIT margin and return on sales (ROS)—is the ratio of operating income ("operating profit" in the UK) to net sales, usually expressed in percent. ...

. This usually involves the application of mathematical modeling techniques using computer software. It has particular applications in

retail Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is the sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholes ...

, where merchants wish to identify the best combination of

price A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ...

and

promotion Promotion may refer to: Marketing * Promotion (marketing), one of the four marketing mix elements, comprising any type of marketing communication used to inform or persuade target audiences of the relative merits of a product, service, brand or i ...

to achieve desired sales,

gross margin Gross margin, or gross profit margin, is the difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of go ...

, inventory or

market share Market share is the percentage of the total revenue or sales in a Market (economics), market that a company's business makes up. For example, if there are 50,000 units sold per year in a given industry, a company whose sales were 5,000 of those ...

objectives. The methods used are similar to those applied in the related field of

supply chain optimization Supply-chain optimization (SCO) aims to ensure the optimal operation of a manufacturing and distribution supply chain. This includes the optimal placement of inventory within the supply chain, minimizing operating costs including manufacturing co ...

, where mathematical algorithms are applied to large databases of sales data to help predict future outcomes. In the case of demand optimization, as well as in house sales history, there may be competitive pricing information. Because it is still a new field, authoritative data on the benefits of demand optimization is not widely available, although suppliers offer

case studies A case study is an in-depth, detailed examination of a particular case (or cases) within a real-world context. For example, case studies in medicine may focus on an individual patient or ailment; case studies in business might cover a particular fi ...

of early adopters which claim rapid

return on investment Return on investment (ROI) or return on costs (ROC) is the ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favorab ...

, especially in the optimization of the timing and level of

price markdown A price markdown is a deliberate reduction in the selling price of retail merchandise. It is used to increase the ''velocity'' (rate of sale) of an article, typically for clearance at the end of a season, or to sell off obsolete merchandise at t ...

References

{{DEFAULTSORT:Demand Optimization Pricing Mathematical optimization in business

See also

References