Cor porate Profi le
Tools for pricing. When a privateequity firm bought a national retail apparel chain with hundreds of mall-based
stores, it wanted to determine the optimal discounting strategy to move unsold
merchandise during their fashion season. The company had ample data on
chain-wide sales of each item, and set
new 10 percent or 20 percent discounts
every four weeks using a standard industry software package.
AOE consultants modeled the retailer’s sales over time, adjusting for special factors such as holiday/seasonal
promotions. The model showed sharply
varying patterns for different items. For
example, bran ded T-shirts were highly
responsive to price cuts, while socks
showed little sensitivity. AOE used the
model to study two years of individual
store transactions around the country. It
became clear that price cuts in tiny suburbs of New York and Washington had a
much lower impact than they did in Midwest malls.
Based on AOE’s analysis, the chain
decided to run smaller, 5 percent markdowns in stores where sensitivity was
low and other strategies in areas with
greater sensitivities. AOE built a priceoptimization model that sets strategy
for individual stores and product categories, based on price elasticity and
store-specific inventories. The model
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and corresponding software allow the
company to increase its gross margins
by 3 percent to 4 percent compared to
the methods they were using previously.
Analytics Operations
Engineering Today
AOE has recently promoted Tom
Svrcek to the leadership role of CEO.
It continues to grow, hiring consultants
and analysts directly from top academic
programs, as well as individuals with
strong academic backgrounds and extensive professional experience; most
have Ph.D.s in mathematics or operations research and have taught at prestigious institutions including MIT, The
Wharton School and Columbia University. They have written multiple books and
articles on supply chain, data mining
and systems engineering and have several times been finalists for a number of
awards in O.R., including the Edelman
Prize and the Wagner Prize.
In 2009, AOE began an analyst-cultivation program by recruiting graduates
with bachelor’s degrees in mathematics
and related fields from schools such as
Harvard, MIT, Princeton and Yale. AOE
believes part of its mission should be to
attract young talent to the field, and to
demonstrate that there are interesting
and rewarding careers outside of Wall
Street and traditional consulting. After
w w w. i n f o r m s . o r g