Analytics Magazine Analytics Magazine, November/December 2014 - Page 60

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 60 | a n a ly t i c s - m a g a z i n e . o r g 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