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Holiday Pricing: Avoiding the Deadly Game of Chicken

The holiday season in retail has become something unique. Retailers know that consumers have only so much money to spend and they have only a small window in which to capture that spend. And so the pricing games begin. My colleague, Paula Rosenblum, used to call it “markdown chicken” – the retailer to be the […]

The holiday season in retail has become something unique. Retailers know that consumers have only so much money to spend and they have only a small window in which to capture that spend. And so the pricing games begin. My colleague, Paula Rosenblum, used to call it “markdown chicken” – the retailer to be the first to take markdowns during the holiday season was rewarded with the biggest rush to spend by consumers. But the earlier a retailer takes the markdown, the less profitable the overall season – and other retailers will be forced to follow suit in order to avoid being the last one standing, with stores full of inventory. Thus, a game of chicken – who will blink first?

This year, the game of chicken seems to exist more between retailers and consumers – and retailers have already blinked. According to Chase’s holiday pulse tracker, the average order value of consumers is down 5% online, and down 0.4% in stores. Some pundits are concerned that this means that consumers are holding on tighter to their wallets in a climate of continued economic uncertainty, but others believe that price pressure is showing up in these numbers, with consumers managing to use price transparency to find better deals. Considering the number of offers that I got before Thanksgiving which promised me Black Friday prices long before Black Friday, I have a feeling we’re seeing more of the latter occurring – price pressure bringing down overall prices.

As for what it means for the holiday season, I unfortunately have to take the stance that it’s too close to call. I watch a bunch of different numbers over the holiday season – I listed a few of them below – and this year so far is a mixed bag. Traffic is up, spend is up slightly, but average ticket is down. Will the traffic numbers be enough to offset the lower prices? Will retailers spend labor foolishly in stores on holiday pay or will the extra opening hours actually drive more traffic – and ultimately more spend? I think the clear winners will be online and mobile channels. After that, it’s anyone’s guess.

However, that does not mean that retailers are in a hopeless situation, at the mercy of consumer whim. Here are a couple of strategies to keep in mind as consumers play the holiday pricing game:

  • Make sure to highlight low availability items. Scarcity is the best defense against consumer price transparency. If you have a relatively scarce item in stock – say, the Wii U, for example – and you can promise it in time for Christmas, you don’t have to price match the retailer who is back ordered through January. And why would you? But more importantly, consumers need to know that the item is scarce – and you have it – so that they don’t get lured away by a lower price, only to find out the item is out of stock.
  • Pull from store inventory to meet online demand when you can. A few retailers were reportedly out of stock online pretty early on Friday, and we have yet to see how they fare on Cyber Monday. Online sales certainly seem to be up significantly on the weekend. I heard some speculation that retailers deliberately shorted online stocks in order to drive consumers into stores. I think this is a mistake. When you know that the clock is ticking on merchandise that you’re going to have to markdown soon, it’s going to be more important to get that item out the door at full price than to try to persuade a shopper to brave the crowds to come into a store to get it. Whether you ship from store, or promise buy online/ pick-up from store, the last thing you want is a store full of inventory on December 23.

As for keeping up with the ever-evolving take on this year’s holiday season, here are a couple of my favorite resources:

Channel Advisor  – tracks how marketplaces like eBay and Amazon are faring for smaller retailers

Chase PaymenTech – tracks in-store and online spending and average ticket values for transactions on Chase’s payment network

comScore – tracks online sales and traffic stats

ShopperTrak  – tracks in-store foot traffic and sales volumes.

With these additional resources at your fingertips, you can make your own best guesses as to the holiday season’s outcome. One thing’s for certain – it will be roller coaster ride!

About the Author
Nikki is a Managing Partner at Retail Systems Research, an industry market intelligence firm specializing in the impact of technology on the extended retail industry. She covers topics ranging from in-store technology and store performance management, supply chain and multi-channel fulfillment, retailer-manufacturer collaboration, merchandising, and loyalty and promotions management.