The Magic Formula For Competitive Retail Profit

The Magic Formula For Competitive Retail Profit is: "Price better." Whether you have 80 or 80,000 products, the proper strategic pricing adjustment can help you capture revenue that you’re leaving on the table. If you raise prices 10% and your volume drops 20%, you’re in trouble. But if you raise prices and your volume only drops 5%, you’re generating more profit at the higher price point. The same is true if you’re lowering prices: If your volume increases at a greater rate than your price cut, you’ll generate more profit at the lower price. (Post: How One Company Generated $200 Million In Additional Profit Using Intelligent Pricing Strategy).

Here are 14 significant pricing insights to aid you in constructing your magic formula for profit:

1. $300 Billion in online direct sales expected in 2014. An additional $1.4 trillion in web-influenced retail sales is expected in 2014. Forrester research. (Post: How Will Forrester’s Predicted $1.4 Trillion In Web-Influenced Sales Affect Competitive Retail In 2014?

2. Pricing intelligence has already been quietly (and effectively) adopted by more than 22.6% of the respondents (large retail firms). Retail Info Systems (RIS) Customer Research poll of large retail firms' senior executives. (Post: What 22% Of Retailers Are Already Doing With Pricing Intelligence That 35% More Will Do In the Coming Year). 

Dynamic Pricing: 

3. 55% of retail winners report they have been more successful in continuing to improve gross margin… while jiggering prices.

4. 52% of respondents indicated that competitive price data currently plays a major role in price setting.

5. 65% of retail winners agree that they have the ability to respond quickly to competitors’ price changes. 

6. (In managing and optimizing prices), 52% of the respondents cited competitors' prices as "very valuable"; 40%, somewhat valuable; and 7%, little or no value.

(Pricing notes above from RSR Research Benchmark Studies and featured in post: 7 pricing paradoxes hindering your retail profits or read here about competitor pricing analysis). 

7. "The number one impact dynamic pricing has on my retail business is on profit margins," reported retailers in RIS (Retail Info Systems) Survey, Pricing Intelligence Goes To War. (Post: Did Retailers Rate Competitive Pressure, Margin, or Geography Most Important Reason For Dynamic Pricing?

More Pricing Insights

8. 64% of companies are deploying or planning to deploy a Big Data project. Gartner: On Big Data. (Post: 64% of Companies Deploy Big Data — 56% Struggle To Get Value From Their Data: A Contradiction?

9. 45% of respondents reported planning to spend MORE on web analytics/data management in the next 12 months. Retailers' responses regarding Web Analytics, Data Management, Assortment and Price Intelligence, for eTail and AT&T survey of over 100 retailers, to uncover technology spending habits from a number of verticals. (Post: If You Were A Retailer, Would You Admit That You Were Worried About Your Competition? 

10. 43% of respondents planned to spend THE SAME AMOUNT on Web Analytics/Data Management in the next 12 months. eTail and AT&T survey above. (Post: If You Were A Retailer, Would You Admit That You Were Worried About Your Competition?

11. 5% of private label categories provide savings of more than 50% to consumers. (Post: Private Label Popularity Means Retailers Must Compare Products Carefully & Price Competitively). 

 Finally, don't blame price for other problems:

12. Retailers listed quality, trust and service as more important priorities for their customers than price. CMO Survey performed for the American Marketing Association (AMA) by Duke University’s Fuqua School of Business. (Post: Marketers Say Shoppers More Interested In Product Quality Than Low Prices. True or False?

13. The main reason for customer churn is the overall poor quality of customer service, NOT price. Accenture global customer satisfaction report.

14. A customer is 4 times more likely to defect to a competitor if the problem is service-related than if the problem is price- or product-related. Bain & Company.

Bottom Line For Your Bottom Line:  

The magic formula for profit is to pay attention to the ingredients highlighted above and add to them. It's not about the price, but rather about important dynamic pricing lessons retailers can learn from existing examples. Using these facts and statistics about pricing will generate the success and $$$ that retailers need in order to be profitable.


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Naomi K. Shapiro, Strategic Market Communications

About Author

Seasoned strategic market communicator, Naomi headed public information for several academic and professional associations as well as founding Creative Brilliance Associates Market Communications. She created and published Brilliant Ideas for Publishers Magazine and authored popular newspaper trade reference, The Brilliant Book of Promotions, Sales Tools & Special Events. Simultaneously, Naomi savored the world as an adventure travel writer that included trekking on glaciers, fishing with saltwater crocodiles and swimming with piranhas. Naomi holds her M.A. from the University of Wisconsin, including participation in a unique industry-science-technical writing program.
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