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Breaking Through Pricing Barriers to Increase Margins

According to a recent study done by Retail Systems Research (RSR), the majority of retailers still feel that the top two opportunities for pricing to contribute to business strategy are: 1)  helping to improve margins, and; 2) helping to improve top line sales. That said, retailers are becoming less and less confident on the subject, as illustrated […]

According to a recent study done by Retail Systems Research (RSR), the majority of retailers still feel that the top two opportunities for pricing to contribute to business strategy are: 1)  helping to improve margins, and; 2) helping to improve top line sales. That said, retailers are becoming less and less confident on the subject, as illustrated by the graph below:

This drop in confidence may be due to the emergence of two challenges that retailers are facing: consumer price sensitivity and price transparency. In order for retailers to achieve the higher margins and top line sales, they need to overcome these barriers.

It has become clear that price sensitivity and price transparency have been increasing in the last few years. A 2011 survey done by Accenture found that 40% of American consumers would switch to a generic label if the the brand name product’s price increased by 10-20%, and 20% of consumers would make the switch for a price increase of less than 10%. To top it off, consumers have an artillery of tools to help them price compare, ranging from their smartphones to comparison shopping engines, resulting in almost complete price transparency.

There are a number of ways that these retailers are choosing to deal with this situation. These include programs such as:

  • Offering price matching or price guarantees
  • Running personalized price programs (i.e. “Just for You” prices)
  • Packaging or bundling products and services (to make them harder to compare)
  • Making frequent price adjustments

This last one seems to be the most common, with the RSR report finding that retailers are continually increasing the number of price changes they are sending to their stores/websites. In order to make these price adjustments effectively, retailers need to closely monitor their competitors’ prices. The problem however is that the volume of information available about competitors’ prices is unmanageable. With many competitors, thousands of products, and prices changing every day, it’s not only hard to stay on top of collecting this pricing data, but it is also becoming increasingly difficult to make any sense of it. Clearly this information is important;  data on competitors’ prices has become the most important input into their pricing decision, surpassing the previous number 1 most valued input, customer purchase.

The good news is that the information needed to make these price adjustments successfully is available to retailers through price intelligence or assortment solutions. Just as consumers now have a vast amount of pricing information available to them, retailers can also get complete visibility into what their competitors are doing like never before. Getting the kind of visibility that provides actionable insights is key to smarter pricing decisions. It is the kind of information that will allow pricing strategies to achieve the goals of improving both margins and top line sales.

About the Author
360pi derives profitable insights from product and pricing big data to help leading omnichannel retailers, etailers, and brand manufacturers compete and win with shoppers. 360pi’s customer base accounts for over $US200 billion in annual product sales and includes Ace Hardware, Build.com, and Overstock.com, along with several Fortune 500 consumer products companies. With the majority of in-store purchases being influenced online, 360pi helps retailers and brands successfully navigate the multi-channel landscape with real-time insight into who is selling what, where, and for how much. Ultimately, 360pi customers make smarter decisions faster to drive increased revenues and margins across all channels.