Many firms base their pricing strategies on what their competition does, how they act and how they promote their offerings. Some propose “every day low prices,” best price guarantees, “prices that cannot be beaten,” or “we will match any price out there.” This is most often the case for retail operations whether they compete against traditional brick-and-mortar companies, or pure online retailers. There are three commonly accepted primary pricing orientations: customer, competition, and cost. If your firm adopted a competition-based pricing because of the nature of channels or market competitiveness, you need to make sure you get the highest levels of accuracy in the competitive data on which you base your tactical pricing decisions. I reckon that, as with value-based pricing, firms engaged in competition-based pricing, might try to cut corners in this area and settle for average levels of data accuracy. Well, there is a saying that states: “garbage in, garbage out”!
The reality is that, even if you do not have accurate competitive pricing information, customers will most likely have it. The massive uptake of smart phones and comparison shopping apps like RedLaser has made it very difficult for retailers, and their staff may be unprepared and ill-informed. If your pricing strategy is to match or beat the prices of online or brick-and-mortar retailers, chances are that you will have to equip your business with the best-in-class price intelligence software. You might have to select among several options. The bottom-line though, comes down to the level of competitive data accuracy, for which you cannot make any compromise.
I recommend evaluating your suppliers based on the several critical factors:
1) Do they offer a minimum guaranteed accuracy levels? Here again, there is no compromise that can be made to avoid increased uncertainty and information ambiguity. I would not settle for price intelligence solution that does not offer a minimum of 98% guaranteed accuracy level. Now you might wonder what makes the difference between a 95% and a 98%. The difference is a greater confidence in the collected data and a greater level of rationality during the tactical pricing decision-making process.
2) Is the level of accuracy consistent from search to search? What are the variations from search to search and what is the standard deviations in the statistical search process. This is information that should be asked of price intelligence vendors.
3) Are all product types covered across the board within a category? Sometimes, margins are greater with one-of-a-kind products, one-time items and special accessories. Will a price intelligence solutions include all the minute details available out there within the electronics category for example? Are product nomenclatures well defined to allow for accurate data collection?
4) What is the width of the product search as far as competitive scope is concerned? Do you have all your online competitors covered? Are you missing anyone?
The critical difference between price intelligence providers are in their intellectual property related to their search algorithms. Obviously, vendors will never share with you the foundation of their IP and how they go about searching. As a user then, you have to challenge these solution providers by asking the critical questions I listed. Ask them about their unique capabilities in data mining, and data quality control. How many resources do they employ in quality control and what is the accuracy they commit to in their customer agreement. The proof is ultimately in the pudding as they say!
If you are in retail and your firm does not scientifically collect competitive pricing data, I highly recommend you consider using a price intelligence solution. Accurate data will bring you greater rationality in your decision-making process and ultimately greater customer satisfaction with their pricing experience. That is what it is all about!
Be bold. Join the pricing revolution!