Mastering the Art and Science of Pricing, Part 3

Mastering the Art and Science of Pricing, Part 3

Mastering the Art and Science of Pricing, Part 3
October 31, 2016 Scott Gillies - Regional Director, APAC

For those of us living in Australia, it’s no surprise that retail globalisation continues to rapidly penetrate, the momentum toward digital shopping continues to grow, and retailers face an increasingly disruptive environment. But the stark language of this comment in a recent Deloitte report, Global Powers of Retailing 2016, on the Australian market jumped out at me: “The globalisation of the Australian retail market is set to continue. Australian retailers therefore face significant challenges in order to meet their growth targets in what is perhaps the most disrupted and competitive of all market sectors.”

Our Responsive Merchandising Maturity Model is designed to help retailers do just that – meet their growth targets by standing out from other retailers in terms of offering meaningful, targeted prices and offers that resonate with customers without needlessly sacrificing margins and profits.

In Part 1 and Part 2 of this series I talked about the foundations of pricing in the “Crawl” and “Walk” phases of the Crawl, Walk, Run construct we like to use. Now I’ll turn to the Run phase, once again shamelessly borrowing from a very thoughtful blog written by my deeply knowledgeable 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. Here are some of the key characteristics Sue cites in organisations at the “Run” phase:

1. Frequent and responsive price analysis and updates.

Organisations at this phase may do price resets daily or even intraday, especially for retailers who are omnichannel or who are etailers. This pricing agility is increasingly important; Deloitte’s report notes that digital influences 40% of retail brick-and-mortar store visits, while 65% of customers use a digital device before shopping and 31% while shopping. Similarly, according to Deloitte, 21% of shoppers think digital increases their overall order size. This is another reason why “Run” retailers do more frequent – weekly or monthly – key value item (KVI) updates.

2. Science-based pricing and localisations.

“Run” pricing incorporates rules developed during the Walk phase, and also consumer and competitive elasticity analysis to know when you should reprice on which items and by how much – and when you DON’T need to reprice on certain items so you can escape the race to the bottom. Organisations in this phase also localise with regional, demographic, competitive and zone-based pricing, and even do zoning by category.

3. Develop and evolve category pricing strategies and apply Market Basket Analysis.

With deep data-driven algorithms, retailers implement highly targeted strategies down to the category level. They also gain insights into the effects of cannibalisation and affinity on forecasted demand, segment shoppers into like groups, and implement more effective pricing, promotions and cross-sell offers.

4. Trend analysis – past and future.

Run-phase retailers can conduct time-based analysis with predictive analytics on what will happen in potential future scenarios, and even prescriptive analytics to guide them on improving performance. Similarly, scenario planning can identify SKUs in that category which could contribute to more healthy margins. As Sue notes in her summary, “The Run-stage retailer discovers the deep rewards of continuing to refine, mature and shape the ways in which it applies science and analytics to business challenges. We often see price elasticity begin to be incorporated into business intelligence reports shared with other parts of the organisation, measurement of price actions including price lift analysis, and perhaps most importantly, analysis of the contribution of price optimisation (and of the pricing team itself) to revenue, margins and volume performance metrics.”

I would love to help you explore how your retail business can structure for success amid the unique market challenges in Australia. Please feel free to contact me and let’s talk!

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