Demand optimization is the application of processes and tools to maximize return on sales. This usually involves the application of mathematical modeling techniques using computer software.

It has particular applications in retail

Retail

Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...

, where merchants wish to identify the best combination of price

Price

-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...

 and promotion

Promotion (marketing)

Promotion is one of the four elements of marketing mix . It is the communication link between sellers and buyers for the purpose of influencing, informing, or persuading a potential buyer's purchasing decision....

 to achieve desired sales, gross margin

Gross margin

Gross margin is the difference between revenue and cost before accounting for certain other costs...

, inventory or market share

Market share

Market share is the percentage of a market accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67 percent responded that they found the "dollar market share" metric very useful, while 61% found "unit market share" very useful.Marketers need to be able to...

 objectives.

The methods used are similar to those applied in the related field of supply chain optimization

Supply chain optimization

Supply chain optimization is the application of processes and tools 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...

, where mathematical algorithms are applied to large databases of sales data to help predict future outcomes

Forecasting

Forecasting is the process of making statements about events whose actual outcomes have not yet been observed. A commonplace example might be estimation for some variable of interest at some specified future date. Prediction is a similar, but more general term...

. 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 of early adopters which claim rapid return on investment

Return on investment

Return on investment is one way of considering profits in relation to capital invested. Return on assets , return on net assets , return on capital and return on invested capital are similar measures with variations on how “investment” is defined.Marketing not only influences net profits but also...

, especially in the optimization of the timing and level of price markdown

Price markdown

The velocity of an article, typically for clearance at the end of a season, or to sell off obsolete merchandise at the end of its life....

s.

See also

• Demand shortfall
• Price
  Price
  -Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
  
  
• Profit maximization
  Profit maximization
  In economics, profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem...
  
  
• Yield management
  Yield management
  Revenue management is the process of understanding, anticipating and influencing consumer behavior in order to maximize yield or profits from a fixed, perishable resource...
  
  
• Price discrimination
  Price discrimination
  Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...