Mastering the Art and Science of Pricing, Part 2
Australian retailers can be forgiven if they sometimes feel as if they’ve fallen down a rabbit hole to a world where everything is topsy-turvy. While many macro-economic measures – including GDP and unemployment – are relatively robust, retail price wars are vicious and, as Reuters Australia recently reported, are even giving rise to speculation about possible deflation. In fact, as Reuters points out, the recent Australian Consumer Price Index measure of 11 groups of goods and services showed six of them with falling prices in the first quarter of 2016 – including food and clothing.
How does a responsible retailer step away from the race-to-the-bottom madness, pursue healthy business practices, and yet connect meaningfully with customers’ expectations? That’s at the heart of our Responsive Merchandising Maturity Model.
In Part 1 of this series I talked about the foundations of pricing in the “Crawl” phase of the Crawl, Walk, Run construct we like to use. Here I’ll summarise a bit of what retailers should think about in the Walk phase, inspired by a highly recommended read with more detailed insights on the subject from my colleague Sue Dale. Taken together, these approaches help retailers thrive through highly targeted, data-driven pricing decisions with updates that reflect real – and real-time – customer and competitive factors.
1. Evolve pricing strategies with a rules-based approach.
The days of going by “gut feel” or past history are gone, and smart retailers set rules and parameters instead based on good data analytics, using both historical and current data. This also helps retailers get much more granular in their pricing, aligning with customer expectations on the items where it matters and recovering margin elsewhere.
2. Implement more sophisticated key value item (KVI) and zoning practices.
With price tools and infrastructure that support business agility and machine-learning algorithms, retailers can get real-time insights across the competitive and consumer landscape and meaningfully increase the cadence of their KVI and price zone updates. This enables retailers to respond with more targeted and rapid price updates as market shifts increase in velocity.
3. Automate competitive monitoring and workflows.
Consumers now shop 24/7 across all channels and banners, demanding automated competitive shopping if retailers are to have any hope of keeping up. Similarly, automated price update workflows help speed your team’s ability to respond within pre-set parameters. And both of these factors free up highly skilled resources to pivot away from manual tasks to more sophisticated analysis and planning – leading us to:
4. Conduct sophisticated forecasting and trending.
Now that your team spends less time on repetitive tasks, they can dive into sophisticated, easy-to-use software for modeling the impact of various market trends and price updates, enabling them to make informed trade-offs between revenues, margins and profits before they commit to a price change.
With more than 14 years of helping retailers along their merchandise optimisation journey, Revionics has seen the powerful ROI that comes with the “Walk” phase. To learn more, take a peek at the brief video that accompanies Sue Dale’s “Walk” blog.
Are you ready to pull back from the abyss and gain control of your future? My team and I stand ready to help you explore how your retail business can structure for success amid the unique challenges in Australia. Please feel free to contact me and let’s start the conversation!
Check out Part I in our Responsive Merchandising blog series: Responsive Merchandising: Back to Basics, Part I
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