John Gilbo, a retail and e-commerce pricing expert at Pricefx, who previously led pricing strategy at Kirkland’s, Academy Sports + Outdoors and Safeway, explains why retailers need to focus on pricing strategies.
The 2021 economic landscape is undoubtedly being shaped by the pandemic and the rollout of vaccines, with many retail executives expecting it to take them anywhere between one and five years recover to pre-pandemic levels.
Retail executives have designated as their the main investment priorities for 2021: digital acceleration (88%), supply chain resilience (78%), health and safety (78%) and realignment of the cost structure (72%).
If there was ever a time to give prices the consideration they deserve, it is now.
The Importance of Pricing in Retail 2021
Retailing in today’s world is difficult, and as the complexity of pricing accelerates, maintaining efficient pricing is one of the most difficult tasks.
Changes in consumer demand, inventory levels, assortment, competition, and sales channels (not to mention blurring of lines between physical and online stores) only make pricing more difficult.
Daily pricing is affected by a plethora of factors including tariffs, taxes and costs; rapid changes in the competitive landscape; increased transparency for consumers; complicated relationships between products and product size, different regions, seasons and weather conditions; sophisticated customer segmentation; and brand alignment (to name a few).
Without the tools that pull all of that data together and then turn it into something actionable, it’s almost impossible to get (and stay) above your prices, let alone optimize pricing to deliver the ‘best’. »Daily price.
However, getting this price right is essential, as all of your other prices (promotions, markdowns, product sizes, supplier offers, clearance) flow from it.
The list of factors affecting the final price to consumers is only growing. And with in-store prices changing several times a week and online prices changing several times a day (on average every three minutes for retail giants), prices move much faster than traditional processes, systems and teams were designed.
Just getting the price to the end point of contact is often a challenge for many retailers. So let’s take a closer look at what is preventing retailers from effectively managing their prices.
Retailers in key areas struggle with price management
Systems integration: Many retailers recognize the importance of business tools and have invested in point of sale, e-commerce, CRM and ERP systems. However, the integration between these tools is clumsy at best, with critical data becoming siled, requiring manual and error-prone processes to release and extract any value.
Price transparency: Many pricing teams work their magic behind the scenes, simply presenting a final number for sales teams to roll out. This black box approach does nothing to instill trust as no one can see where that number came from. Pricing teams should embrace end-to-end price transparency that provides clear historical data to show your price history and make it clear why you are there with the price. Your sales team is then better able to defend them. Most retailers can’t do this with their current tech stack.
Price discipline: Ensuring that your strategic pricing plan is adhered to requires discipline and clarity. However, retailers rarely provide sales with pricing rules and safeguards to ensure that they rarely have to go out of the designated path. Clear pricing guidelines can protect margins eroded by unwarranted discounts.
Process: Too often, pricing is done on multiple Excel sheets, email communications and manual entry of price changes – each step with a risk of human error – and its management requires 24/7 effort, which means pricing experts are spending their time on expensive data managers rather than strategists.
Competition data: The ability to react to competition in real time is crucial (especially for e-commerce), but most merchants do not have a systematic way to obtain or respond to this data.
Visibility of the price cascade: Regular prices and promotional / demarche prices are often managed and executed by different teams. Without visibility into your entire price cascade and a view of prices throughout the lifecycle of a product, you cannot see how one affects the other or the relationship of a price range. to another. Impacts are generally only recognized after mistakes have been made.
Product relations: General smart business tools such as ERP do not have price requirements as a primary focus and therefore only allow one product hierarchy, which means pricing can only be at the level of the article or commodity.
Variables and non-tariff relationships: Knowing where to raise or lower prices based on cost, demographics, channel, store location, product location, inventory status, seasonality, placement of announcements, supplier allocations, shipping times and costs, and customer expectations. Most retailers haven’t built this kind of data into their pricing tools, and putting it together would be a colossal task, as the data is out of date by the time it is used.
Agility: Overloaded with unintegrated systems, siled data, insufficient analysis tools and time-consuming processes, most retailers are slow to respond to the market. Which, in a world where prices change several times a day, is a distinct disadvantage.
Analytic: Traditional business intelligence tools rarely have built-in pricing capabilities, and even rarer do they provide real-time information or drill-down views.
Customer segmentation: Pricing is most effective when it is based on the purchasing behavior of consumers, whether online or in-store. It is therefore essential to be able to target them with prices specific to a segment to maximize profits. But most systems cannot price at the customer segment level.
Discount price management: While promotions are a popular revenue lever in retail, with many teams (vendors, traders, finance, stores, executives) involved in pricing and item selection, it is difficult to understand how promotional pricing affects the overall impact on margin and revenues. Is the promotion progressive? Did it improve sales by category? Or has it degraded overall income? Promotions are also frequently overlaid (for example, coupons and discounts at the same time), which further complicates the analysis.
Clearance price management: Although often overlooked, this is one of the fastest ways to improve overall revenue and margin through pricing. But it takes a centralized process, automation, rules, and goals to get it right. You need exploration tools that tell you how many of each of your categories you are selling on clearance and whether that is bringing that category down, and analytics to help you find opportunities for margin improvement and increase. revenues.
Predict the impact on prices: Frequently, price changes are made without knowing the estimated impact on unit volume, margin, revenue, customer segment, category / taxonomy or whether a change could cannibalize profits elsewhere in the portfolio . Some retailers use machine learning models to attempt this, however, they often have the same basic algorithms for all categories and use industry standard attributes. New inputs, such as tariffs, COVID, customer specific attributes, are usually not taken into account.
Focus on pricing is key to survival
Retailers need to be able to pull together disparate data, present it clearly for analysis, and turn it into actionable insights. Ideally, this tool or solution includes price management and execution, and this actively helps them discover profit drivers and opportunities. Retailers need to put price high on their priority list and invest in strategies and tools that will help them maximize their profits for every transaction.
If you really want to stay competitive in a world of ever-increasing pricing complexity, you need to invest in a system that analyzes, manages, simulates, and optimizes your pricing and promotions across all channels, including your ERP and CRM.
The future of retailing and your survival are in the price.
Jean Gilbo is a Retail and Ecommerce Pricing Expert at Pricefx. He previously led pricing strategy at Kirkland’s, Academy Sports + Outdoors and Safeway.