Price-optimization software is credited with boosting retail profit margins

[mandy]

A large retail chain had a problem. It sold three similar power drills: one for about $90, a purportedly better one at $120 and a top-tier one at $130. The higher the price, the more the store profited.

But while drill know-it-alls flocked to the $130 model and price-fretters grabbed its $90 cousin, shoppers often ignored the middle one.

So the store sought advice from a new breed of "price-optimization" software from DemandTec Inc. What followed offers us a clue about important shifts that technology is bringing to retail shopping.

After analyzing an array of variables, including sales history and competitors' prices, the software suggested cutting the middle drill to $110...

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