Do your customers see what you want them to? How to identify your current pricing perception.

In his Thoughts on Art and Life, Leonardo Da Vinci wrote that “All our knowledge is the offspring of our perception”.  It is true that even the most knowledgeable shoppers base their purchasing decisions on perceptions that may or may not reflect reality – often assuming that one retailer has better prices than another based on numerous factors. Although retail pricing teams cannot control for all of these factors, the vast majority of them can be mitigated and managed if retailers focus on successfully implementing best practices surrounding these three fundamental questions that every retailer should be asking about their competitive position.

Question #1: What Does Your Company Think Its Competitive Position Is?
Question #2: What Is Your Company’s Actual Competitive Position?
Question #3: What Do Shoppers Think Your Company’s Competitive Position Is?

Let’s examine each of these and better understand why they are essential and how they are connected.

Questions to determine your pricing perception

Question #1: What Does Your Company Think Its Competitive Position Is?

Another way to think about this question is to define it as your Competitive Strategy. Most retailers have a competitive strategy, but that doesn’t mean that it is an effective one. Is there a centralized, science-informed, data-driven approach in place or does every buyer have their own competitive approach? How were top price perception items (KVIs) identified? How were pricing zones determined? What is the channel strategy to drive price perception in an increasingly online retail environment? How frequently are you planning on shopping top competitors and what sort of predictive analytics are used to determine whether or not to price match or to develop a pricing index against them?

Although it may seem obvious, the first step to establishing a powerful price perception in the market is to develop a comprehensive, analytics-informed, centralized competitive strategy. If you’ve failed to answer this key question in a thoughtful, science-informed manner that leverages best practices, it doesn’t even make sense to consider question #2.

Question #2: What Is Your Company’s Actual Competitive Position?

Another way to think about this question is to define it as your Governance. At Revionics, we have the broad perspective and expertise that comes with building profitable pricing solutions for over 100 clients across the globe. With that experience comes the observation that there is often a very large gap between what a retailer thinks its competitive strategy is and what it actually is. Well designed competitive strategies start falling apart rather rapidly when merchants have the ability to override them. If your objective is to match competitor XYZ and buyer A matches them but buyer B is 15% higher than them, you’ve lost the war on price perception.

The other key element here is reporting and measurement. If your organization isn’t leveraging the best pricing platforms with competitive dashboards and processes in place to monitor its position over time, it is highly likely that even the best intentioned, well designed strategy will eventually go astray. As critical as it is to answer question #1 and build a competitive strategy, it is absolutely pointless if your company is unable to address question #2. Governance, compliance and strategic reporting that drives actionable results is essential to driving price perception in the market.

Question #3: What Do Shoppers Think Your Company’s Competitive Position Is?

This is honestly the only question that matters, but odds are you won’t like the answer if you haven’t invested in solving the first two. When it comes to pricing, perception is reality, but rarely does perception match the facts. We’ve often encountered retailers who have a strong competitive position but aren’t getting enough credit for it by the market. There are numerous reasons why this could be happening.

One could be a failure in analytics – if you’ve misidentified your key items and you’re highly competitive on inelastic or non-price perception driving products, you may be throwing away margin for minimal return in price perception. It may be a failure in technology or process. If your competitor is able to adjust their pricing daily and you’re trying to play catch-up on a weekly cadence using old spreadsheets and antiquated systems, even the best strategies with the highest amount of compliance will fail to drive price perception. It may be a failure of messaging or marketing. Having great prices doesn’t matter if nobody knows about it or your messages are centered on other aspects of your business.

Price perception is also a function of consistency and stability – it takes time to establish a positive price perception in the marketplace, but a few bad ideas, mistakes, or poor prices on key items can quickly dissolve all of the perceptions that you’ve built over time. This again speaks to the absolute need to effectively manage the complexity of this using advanced solutions that limit human error while providing robust dashboards and reports to enable your organization to monitor and react to anything that might harm your price perception. Don’t forget that price perception is being managed by your top competitors as well – as the old saying goes “they don’t need to outrun the bear; they just need to outrun you” to ruin your perception in the market.

Shaping your price perception

Price perception is challenging for even the savviest retailers, but it doesn’t need to be.  If best practices, analytics and solutions are used to build a strategy and ensure that it is properly executed, it can lead to a new “reality” for your consumers that enables your organization to realize sustainable, profitable share growth at your competitor’s expense.

For more on how to improve your price perception, download our ebook Price Perception: How to Win Customers and Influence Perception.

About the author

Matthew specializes in Pricing & Retail Strategy, Corporate Strategy & Customer Focused Solutions. Matt is a leader in Pricing Strategy Development, Business Strategy Development & overall Corporate Strategy. Matt has a strong merchant background and experience with C-Level presentations. He has 20+ years of experience in Retail encompassing Consulting, Buying, Pricing, and Marketing across a variety of retail verticals, industries, and regions. Having lived and worked in France, Germany, Hungary and South Africa (with additional long-term engagements in other markets), Matt has 8+ years of driving customer-focused success at Revionics.