One of the most complex aspects of retailing is getting prices just right. With price playing such a crucial role in the buyer’s decision process, retailers who master the art of pricing can grow market share and ensure the prosperity of their business. In today’s tech-focused world, modern price-sensitive consumers can effortlessly compare prices at competing retailers with just a few clicks, and determine which companies offer the best value on particular products. Lacking the dynamic pricing capabilities to efficiently update item-specific prices across all channels is thus a serious impediment to a company’s success. When executed properly, a dynamic pricing strategy increases revenues and margins, strengthens brand image, and enhances retailers’ capabilities to respond to real-time competitive price intelligence and pressures across their segment. This article explores four easy steps retailers can follow to sharpen their pricing strategy.
1. Allocate Sufficient Time to the Planning Process
Allocating sufficient time to properly plan your pricing strategy is essential to ensuring its success. Some price management solutions enable users to view key data of the price lifecycle, from the first time the product was carried out and priced, all the way down to when it was discontinued, including all the steps in-between. By combining these insights with KPIs and using the historical performance of similar products as a reference, users can easily determine the optimal selling price of new merchandise. Inventory, price elasticity, and product rate-of-sale data should also all be incorporated into the pricing strategy at the very beginning to ensure flawless execution.
2. Build Predictive Price Strategy Models
Retailers can use price intelligence data to build predictive price strategy models for specific items and product lines as well as entire departments and stores. Sophisticated filtering and attribute-selection capabilities allow merchandisers and managers to spot short, medium, and long-term trends. Although there must always be some allowance for reactive pricing, retailers can use models derived from price intelligence software to implement proactive price and inventory changes. What’s more, when properly configured, modern price management tools can help users pinpoint issues that could otherwise have gone unnoticed. For example, if the price retailers are setting up gives them less than a 30% margin, the system won’t allow them to continue. Similarly, if retailers sell goods in certain parts of the country in which prices cannot be below the manufacturer’s suggested retail price (MSRP), they will be notified by the system.
3. Create Price Plans
A well-thought-out price management strategy typically involves highly-configurable price plans, which enable retailers to plan prices by week, month, quarter, or season. Prices can additionally be adjusted by channel, store, or cluster. Retailers can then distribute these prices using geographic and demographic factors and can create price actions. For example, retailers can decide to lower or increase a retail price by a percentage or an amount and apply these actions to the products of their choice. Retailers can also set up certain rules that can be maintained behind-the-scenes. For instance, they can decide to apply non-rounding pricing rules, as customers usually perceive non-rounded prices (e.g. 49.99) as less expensive than rounded ones (50.00).
4. Collect and Interpret Competitors’ Pricing Data
Retailers who want to gain a differential advantage should consider investing in price intelligence software, which digitizes and automates the practice of collecting and interpreting competitors’ pricing data to inform dynamic pricing decisions. With a myriad of qualitative and quantitative product attributes to select from, retailers can use price intelligence data to compare prices for non-identical products in addition to identical SKUs. This facilitates the implementation of competitor-based dynamic pricing strategies for comparable products — a critical capability for retailers that stock private label items without identical analogues elsewhere.