Why Centralized Pricing Is Essential to Your Price Perception

Taking control of your pricing strategy to drive value in uncertain times

It’s no secret that consumers value price. A McKinsey survey found that when it comes to most grocery store staples, price ranks well ahead of other considerations such as quality and brand. However, the ongoing uncertainty of the supply chain and economy has many retailers on the defensive when it comes to managing their price perception.

Despite the current economic climate, innovative retailers are finding opportunities to improve price perception. One way to go on the offensive with your price perception is to leverage advanced, AI-based pricing tools to create and support a centralized pricing strategy.

What is a centralized pricing strategy?

A centralized pricing strategy is an all-encompassing, cohesive pricing strategy with well-thought-out analytics. It is driven by a central pricing team that is highly fluent in the right tools, analytics and AI platforms to determine what the company’s pricing strategy should be. This team then works with individual business units and vendors to ensure that the right strategy is followed with governance, measurement tools and continuous improvement.

When spearheaded by a core pricing team, a centralized pricing strategy allows retailers to truly take charge of their price perception. Backed by advanced analytics, the pricing team can support pricing decisions that drive a united price image across the enterprise.

Set your own pricing path

When you consider the above description, centralized pricing sounds like a clear choice strategy, but many retailers still allow buyers or vendors to dictate pricing. However, individual merchants and vendors often lack visibility into the full pricing needs, strategies and objectives of the entire organization. It is not uncommon for a vendor or merchant to come forward with a pricing structure that may make sense to them but doesn’t support company-wide goals.

As such, vendor- or merchant-led pricing can result in mixed price perception messages and negatively impact the competitive positioning of an organization. Ultimately a damaged price perception can cause a retailer to lose loyal customers and market share, particularly if the consumer is getting mixed pricing messages on Key Value Items, or the products they have the highest price sensitivity on.

Promotions can be a common issue with vendor-led pricing. I’m sure you’ve been in a situation where a vendor will propose a promotion that may not be necessarily a bad one, but it’s based on what they did last year or what they need to achieve — e.g., more unit sales — and not your own goals.

Now, this isn’t to say that you should completely ignore input from your merchants and vendors. Rather, pricing teams should leverage insights and expertise from their merchant and vendor partners to better inform pricing decisions that fit within the greater centralized pricing strategy.

For example, a national brand with a large shelf presence is likely to have a strong grasp on demand forecasts across various retailers, channels and geographies for their products. Bringing together their data and your data, you can work to find pricing that meets both parties’ goals and drives value for each.

Centralized but localized

Centralized pricing also doesn’t mean that pricing must be uniform. In fact, localization is an important part of a strong pricing strategy. But again, the difference is that localized pricing decisions are being made by a central pricing team that can see the full picture, not by merchants with a narrower view.

With so many variables, pricing teams should look to modern, AI-based solutions to suggest the best prices for improving price perception by location and channel while aligning with company goals. Equipped with analytics, scenario simulations and data science, retailers can optimize their pricing mix, find margin opportunities, move more inventory and delight customers, all without having to use formulas in a spreadsheet.

Say, for example, you have to keep prices low in one particularly competitive pricing zone. Your merchants may want to increase some prices to improve their margin numbers, but that would damage price perception. With a centralized view, your pricing team can see where prices may be increased in other zones to cover the margin loss without hurting your price image.

While retailers are dealing with rising costs, on the other side of the equation, customers are dealing with rising prices. This means they’re more willing than ever to try new channels and new experiences in the name of maximizing monthly budgets. As with localization, a central pricing team has visibility across all channels and can ensure they are always offering the right price in the right channel to entice shoppers and fuel overall objectives.

Control your price perception

To sum it all up, a centralized pricing strategy allows retailers to price more strategically across the whole organization instead of each piece operating separately. Retailers with a strong centralized pricing strategy can more easily navigate all the disruptions and challenges in the market to increase profits and revenues while also protecting and even improving price perception.

If you want to know more about how our customers use Revionics to protect margins and price perception amid economic instability, check out this case study with drugstore retailer Drogaria Araujo.

Need a powerful AI solution to enable your centralized pricing strategy? Reach out to our pricing experts to see how Revionics can help.