Why Pricing ‘Right’ Is Vital For Retailers Today

 In 2011, Retail Systems Research (RSR) managing partners Nikki Baird and Paula Rosenblum explored the impact of price transparency on retailers’ pricing strategies and tactics. According to the survey, "Optimizing Price In A Transparent World," the "Top 3 business challenges driving pricing strategies" were increased price sensitivity of consumers; increased pricing aggressiveness from competitors; and increased price transparency (brought on by the ubiquity of smart phones and other connected mobile devices).

Simultaneously, the "Top 3 opportunities identified by survey participants to contribute to their business strategy in the next two years" were: Improve margins, improve top line sales, and create more profitable promotions.

RSR conducted this online survey from December 2010 to March 2011, garnering answers from 68 qualified retail respondents that included Senior Management, Vice Presidents, Director/Managers, Staff; Internet Consultants, and Others. The respondents represented businesses ranging from annual sales of less than $250 million, to those with over $5 billion in annual sales. 32% were in FMCG (fast moving consumer goods); and 42% were general merchandise and apparel. Respondents and their retail presence were located worldwide, with the majority in the U.S.

Here were the challenges identified by the respondents as, "The Top Three Business Challenges Driving Pricing Strategies":

 

Image courtesy and permission of RSR

(Note, the first percentage given is the 2011 figure and second percentage listed is the 2010 figure):

Increased price sensitivity of consumers (58%/46%); Increased pricing aggressiveness from competitors (48%/38%); Increased price transparency -- the impact of comparative price shopping (40%/11%); Need to protect our brand's price image (38%/28%)

RSR added a new option to help evaluate perceived, "increased promotional intensity of retail competitors." Thirty-two percent of respondents picked this new choice as one of their top three business challenges.

This was followed by Need to provide consistency in price across channels (32%/6%); Need to provide more localized pricing (14%/7%); Respond to segment blurring (10%/16%)

In view of the fact that consumers now had near-perfect information about the competitive pricing environment, retailers believed that consumers were more price sensitive than ever and were quite worried that they would have a very difficult time raising prices due to this consumer price transparency. Retailers also recognized that their own channel price differences caused additional issues, and the key would be to reduce or eliminate pricing channel conflicts.

The "Top Three Opportunities for Pricing To Contribute To Your Business Strategy In Next Two Years" indicated by the respondents, were, To Improve Margins, Improve top-line sales, and Create more profitable promotions. 

 Image courtesy and permission of RSR

Improving margins was much more prominent in 2010, at 82%, but still a major concern in 2011 with 51% of the vote. Improving top-line sales was also more prominent in 2010, at 58%, but still strong in 2011 at 49%. Create more profitable promotions was a bigger priority with 45% in 2011, against 34% in 2010.

The rest of the list included: Create a more price-competitive image for our customers (34%/41%); increase market share for key categories or products (28%/40%); and better matching of demand and product supply (28%/26%).

"Providing a more seamless cross-channel experience to customers" became a bigger priority for retailers in 2011 (26%/12%); as did, "Provide more localized offerings to customers" (21%/19%).

While survey respondents report that they generally don’t encounter pricing challenges arising from channel proliferation, it is clear that providing a more seamless cross-channel experience to consumers – including price and promotion – was moving up the list of opportunities, with more than double the respondents ascribing it top-three status over the previous year.

Top Three Opportunities for pricing to contribute to business strategy:

In prior RSR Research, "the Top Three Opportunities for pricing to contribute to business strategy" showed that "winners" (those more successful in business the past year) do target the competition. Their top three priorities were to improve margins (56%/48%); create more profitable promotions (50%/41%); and create a more price competitive image for our customers (44%/28%).

Other pricing/business strategy opportunities cited were to increase market share for key categories or products; improve top-line sales; provide more localized offerings to customers; stand out on mobile price comparisons; and provide integrated management of the entire product lifecycle, (not even mentioned in 2011). RSR noted that this is a significant shift from past behavior, and underscored the depth and breadth of the price transparency challenge.

What this means for you:  

If you don't price right, you're not being competitive.  Price sensitivity, increased consumer price transparency, increased power to the consumer, increased promotional intensity, a need for consistency across channels, and increased interest in targeted promotions, are the reasons it's essential to get your pricing right -- and why you need to be tracking your competitors' prices and assortment daily.  

Most of the retailers said they had effective policies in place to manage different prices and promotions across channels.

That was in 2011. Since then, RSR came out with "Retail Pricing in a Post-Channel World: Benchmark Report 2012."  In the 2012 Survey, retailers reported still being affected by consumer price transparency, said they hadn't seen "showrooming", weren't able to execute at the level of granularity that pricing solutions provide, and were making more plans and budget relating to forecasting and product lifecycle management.

In Part 2 of this blog post, I'll talk about "How Retailers Can Adopt Price Management And Optimization Technologies For Greater Profit" -- and the organizational barriers preventing retailers from implementing more effective pricing practices.

I'd like to hear what you think are the top challenges driving retail price strategies today. Thanks.  Gilon 

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Gilon Miller, CMO

About Author

Gilon is a seasoned marketing, sales and business development executive with over 15 years of experience in the software and Internet business. He is the Founder and CEO of GuruShots. Previously, Gilon was the CMO of Upstream Commerce, VP of Marketing at iMDsoft and Director of Global Marketing at SAP. He earned an MBA at the MIT Sloan School of Management and a BS in Electrical Engineering from Tufts University.
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