Take your pricing from separate tactics to an integrated strategy for success in today’s challenging retail environment with these pricing strategy best practices.
Imagine a football team that didn’t have an offensive coordinator or call plays. On every snap, every individual player could choose whom to block, where to run and what type of play they thought would help their team the most. Imagine a Broadway musical where the director didn’t assign roles, there were no scripts, and all the actors were told to go out and entertain people. Finally, imagine a general on the eve of battle not coordinating his troops and instead allowing each regiment to do what it thought was best.
The scenarios above sound like a recipe for disaster, so it is worth questioning why many retailers approach their pricing strategy in the same exact manner. The absolute best plan for price strategy is to actually have a strategy and not a collection of tactics that don’t amount to a greater objective. Sadly, too many retailers allow their individual merchants to control pricing in a decentralized manner. This prevents the execution of truly powerful pricing tactics that drive real price perception in the market while achieving financial objectives at the enterprise level.
Creating a centralized strategy with strong leadership, adoption, and governance is the best way for retailers to price successfully in today’s increasingly challenging retail environment. Keeping in mind this is the critical element to success, here are our top pricing strategy best practices that are critical to driving value for your organization.
Know Your Brand and Price Accordingly
A lot of lower-priced discounters and premium retailers know how they want to be positioned and priced appropriately for their brands, assortments and shopping experiences. However, there is a lot of space ‘in the middle’ where retailers large and small struggle to establish a pricing identity. Not everyone can or should compete with Amazon, Walmart and Alibaba. Similarly, not everybody can price like Nordstrom or Tiffany’s. Knowing who you are and having a consistent, centralized (as mentioned earlier) pricing message is critical to establishing a true identity in the marketplace, which leads to long-term financial benefits.
Transparency is an increasingly important pricing strategy best practice. Today’s shoppers are savvy, informed, and they vote with their purchases. Having transparency in pricing is critical in an omnichannel world where shoppers have all the information available at their fingertips, and are likely to consider a wider range of competitors than ever before. In this environment, anybody can purchase from your competitor at any time from the comfort of their own home. Thus, having a clear pricing message that is consistent with the values of your organization and its shoppers is vital for success.
A Portfolio / Balanced Approach Is Critical
It wouldn’t be prudent to put all of your retirement and investments into one company’s stock. Similarly, it wouldn’t be prudent to spend your entire budget in one area and ignore all others. Despite this, many retailers fail to look at the aggregate portfolio of their business when it comes to pricing strategy. In lieu of a centralized, analytical approach to identifying company-wide key value items, many organizations are still allowing merchants to create lists of personally important items using limited or no analytics at all. Category pricing strategy roles (i.e. traffic driver vs. margin enhancer) are often non-existent or designed without a portfolio impact in mind. A collection of tactics at the merchant level, which are not aggregated to a greater strategic objective, that also lack analytics and have no real governance is a recipe for a pricing disaster in an increasingly sophisticated retail environment.
Technology Is No Longer an Option
Most people are not only aware, but also comfortable with the fact that the airline, hospitality and rideshare industries use advanced pricing algorithms. It is inconceivable for a major retailer in today’s world to not use technology to help with replenishment, planogram creation or key HR functions. Despite these facts, there are still some retailers who have not taken the necessary steps to enhance their pricing with advanced analytical platforms. The ability of an AI pricing solution to model billions of outcomes based on real consumer insights is simply impossible for a human to replicate – and yet, there are still retailers who are ‘bringing knives to a gunfight’. All the best strategies in the world cannot make up for a technological gap so wide that it will eventually determine tomorrow’s survivors and failed banners. That’s why adopting the right technology to keep your company informed, agile and competitive is one of our top retail pricing strategy best practices.
Be as Dynamic as Possible
A competitive strategy is only as good as its reaction time. If your competitor is shopping you more frequently than you are shopping for them, they will win the war on price perception. Unless your organization is shopping every item, every day and reacting accordingly (based on operational constraints and priorities), there is definitely room for improvement. Developing strategies that focus on the most important parts of your portfolio and leveraging the best technologies available to drive dynamic pricing, is essential to survival in today’s competitive world.
At Revionics, we can support you in developing these and numerous other pricing strategy best practices as you progress into a more pricing fluent organization to meet tomorrow’s challenges. Whether you want to optimize everyday prices, establish a more strategic approach to markdowns, run successful promotions that get results, or meet any other retail pricing goals, our dedicated team of pricing strategists and data scientists will walk with you through the pricing journey to maximize your company’s success.