Did Retailers Rate Competitive Pressure, Margin, or Geography Most Important Reason For Dynamic Pricing?

I just wrote about retailers getting on the pricing intelligence bandwagon, based on a recent RIS (Retail Info Systems) Survey, Pricing Intelligence Goes To War. As retailers gird their loins, i.e. ramp up their pricing skill sets, they're increasingly using (or planning to use) sophisticated tools for dynamic, real-time pricing.  That is to say, information provided in easily consumable formats, that enables them to flow it into their merchandising and marketing solutions, in real-time. Here are some more takeaways from that survey on issues relating to competition, and the retailers' thoughts about selection and use of pricing intelligence solutions

Effect of Dynamic Pricing

Respondents said the number one impact dynamic pricing has on their retail business is on profit margins. They gave profit margins a 4.0 rating out of a maximum of five. Other impacts were customer satisfaction (3.9), sales (3.9), competitive advantage (3.8), conversions (3.7), and brand image 3.6.

The survey observed that, "since most price changes are reductions intended to stimulate sales or meet competitive pressures, the result will be a squeeze on profit margins," adding, Inevitably, this will become a source of tension between the merchandising and marketing departments, and a motivating force to implement closer collaboration between the departments. (more on that in a minute).

 

The question of price change frequency is another critical question all retailers will have to address. It is clear that retail has entered the world of daily price changes, with 26.7% saying their price changes should be made daily; and another 26.7% saying (changes should be made) "in real-time with no limit on the number of changes". 10% reported that they make price changes at least once per day, 10% do it every two to four hours, and 6.7% do it every hour. Only 13.3% said they do it weekly, and 3.3% said monthly, "(neither of which) can be considered dynamic pricing in the Internet age," according to RIS.

An interesting take on the price-change process is whether price changes be manual or automated. According to study data, the vast majority of retailers (71%) believe a hybrid of automated technology and manual price changes is the best way to manage. 12.9% said manual with one executive in charge; 6.5% thought it should be fully automated; and 3.2% said "manual with multiple executives in charge.

Who Should Manage Pricing Intelligence?

Another angle on the use of pricing intelligence is to give more balanced power between merchandising and marketing departments. RIS notes that merchandisers control assortments, purchase products and are incentivized to maximize margins. On the other hand, the marketing department sets prices, which also makes sense because marketing is responsible for sales and brand management (of which price image is a large part).

Today, just 10% of retailers say dynamic pricing is managed by a combination of both the merchandising and marketing departments… Pricing is so essential to sales efforts and brand image that it is logical that marketing would want a seat at the pricing table. In the age of dynamic pricing, leading retailers will be smart to give it to them, says RIS.

Bottom Line For Your Bottom Line:

Use of sophisticated pricing intelligence tools makes it easy to use the information, and also sharply increases the speed that the information can be used.

Here's what retailers indicated they believe are most important attributes to use when setting parameters for using their dynamic pricing tools:

73.3% Competitive Pressure

53.3% Average margin must be achieved to ensure profitability of each product as well as across the product line.

50% Geographic location. There is no reason to abandon localized pricing in the digital world, although it has to be done with more sophistication since websites create a new level of customer transparency. Used properly, there are actually new opportunities to get even more granular with local pricing.

46.7% Supply of product – under-supply offers the opportunity to raise prices to drive up profit margin and over-supply offers motivation to lower prices to move slow movers more quickly.

46.7% Time – timing is everything in successful comedy and in dynamic pricing.

43.3% Basement price – there has to be an absolute low price and it has to be set in stone.

40% Ceiling price – setting an upper price is also essential to avoid customer dissatisfaction.

36.7% Managing attributes by channel -- not high on the priority list when creating a dynamic pricing strategy.

33.3% Market Share

33.3% Customer segment

26.7% Inventory turn

23.3% Loss leader

Remember that pricing intelligence solutions not only help see where you can price competitively by lowering your prices, but to see where you may be priced too low, and can raise your prices; there's the whole subject of using your price intelligence to be aware of your competitors' assortment -- and set prices accordingly; and much more.    

 

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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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