Underpricing & Overpromoting Are Some of the Retail Mistakes Revealed by 2016 RSR Benchmark Pricing Study

For the past few years, RSR (Retail Systems Research) has noted and chided retailers for being slow to adapt to modern market and pricing demands, believing they could win the race by low, lower, and lowest prices, or thinking that just participating in the race (i.e. competing on low price), would keep them in the game. This year's RSR Benchmark Pricing Study, Pricing 2016: Life Becomes Unmanageable, found that retailers are feeling the negative impacts of their past pricing decisions and the key to success this time around will be modern price strategies that respond quickly to competitors' prices, work well across channels, and are granular in execution. 

The Top Three Objectives of Company Pricing Strategy included: Maximizing gross margin, improving merchandise sell-through, and building market share:

The study noted several destructive pricing practices that made it harder for retailers to take advantage of opportunities for pricing to contribute to business success, and that the pricing tactics being employed were just a one-way street to the bottom. Some retailers are now planning to bounce back by offering fewer promotions, while others are doubling down on their promotion strategy.

The Top Three Strategic Pricing Business Challenges included: Increased price sensitivity of consumers, increased pricing aggressiveness from competitors, and increased price transparency (the impact of comparative price shopping):

 

RSR found that Retail Winners (RSR's term for effective industry leaders, vs. "Laggards," RSR's term for less effective retailers) are most challenged by keeping up with competitors’ prices and forecasting the impact of potential pricing decisions, while their lagging peers are focused on managing promotions across channels and minimizing markdown spend.

In the face of "competitive pressures and over-educated consumers," some "egregious" behavior by retailers (in the words of the study), included overly "pummeling" their staff with too frequent price changes; starting holiday selling earlier and earlier; and offering blanket discounts while taking too much off of the price.

How will retailers find their way out of this problem? By placing more emphasis on technological capabilities for regular pricing, competitive intelligence, and product movement and less value on promotional tools than they have in the past, says the study.

Retailers seem ready to admit that some of their confidence in their ability to execute effective price strategies may have been overstated; that mass promotions don’t work when you don’t have easy access to a mass audience; and that targeted promotions don’t work unless you have a solid understanding of the wants, needs, and preferences of small customer segments.

There's also a realization that pricing may have more to do with customer demand than with product supply. In other words, it’s not just about the mass, product-based deals coming out of merchandising. It’s more about how well marketing can find pockets of demand and meet that demand with a granular, personalized price. It's about optimization in product movement -- and correct pricing is the key.

As retail winners struggle with weaning consumers off destructive promotional strategies and emphasize the demand side of the price equation over the supply side, they hope that by keeping an eye on competitive actions in the market, they will be able to manage the shift. 

Bottom line for your bottom line:

Retail survey respondents reported that their most valuable pricing technologies consist of regular price planning and management, competitive price intelligence, and promotions planning and management. They said that they plan to invest in new capabilities mostly around promotion optimization, markdown planning, and inventory management.

They want to be able to forecast the impact of their pricing decisions, monitor how competitors respond to those decisions, and make sure that whatever the result is, it is at least profitable

The desire of retailers to set smarter, more externally-aware prices has led to a spike in demand for price intelligence software with sophisticated capabilities in predictive analytics and price optimization.

Not even the lowest-priced retailer can win on price forever -- and retailers need to put the technology capabilities in place to wean consumers off of unprofitable pricing and promotions. 

Stay tuned to find out whether retailers can come up with a value proposition that both appeases consumers and staves off competitive responses.

(The report, part of RSR Research's ongoing efforts to provide market intelligence on retail technology trends, was supported, in part, by Upstream Commerce).

 

 

 

 

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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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