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Pricing still matters - but get smart about it!

Every retailer is always looking to do whatever they can to get customers over the threshold – and spend! There are a lot of factors that influence each step of the buying cycle for consumers, and often the right promotions are what gets customers over the line. Price, promotion, and assortment are clearly important, but there is a point where a price drop no longer attracts enough customers or where competition has to react to defend their customers, blunting the effect.

The question is, where is the point at which retailers are compromising their margin, but not gaining any more sales, or profit from the way they manage pricing?

It’s all about the price, right?
Of course, it is not just a matter of whether to discount and how much, but in what way do you offer that price? Is it straight discounting across the board, category linked, or designed to encourage volume purchasing? Of course promotions have to be developed in response to what is happening in the rest of the retail market, often forcing retailers to make promotional decisions that are not necessarily in line with the buying decisions and margins they committed to for the season nearly a year ago.

Making price and promotion decisions purely in terms of the competition, margin and sales volumes is a common mistake to make. The truth is that without the right scrutiny retailers could be pushing customers away from more profitable lines, or worse still combinations of lines, that they would otherwise be buying.

Retailers need to understand which lines are the right products to discount or promote, and which when promoted, will actually drive incremental sales and margin over their baseline sales. Often the products retailers promote are cherry picked by customers and never lead to incremental basket sales. How can you know what to do?

Use the knowledge under your nose
Insight is the way to answer all of these problems. The issue is that the vast majority of retailers have spent huge sums of money implementing systems that ensure they sweep up every piece of data into a big data warehouse. Why is that a problem? It is happening so fast that they have tons of data, a little information, and even less insight. 

The whole challenge is made all the more complex by external factors - all of which can be used as data - to inform decisions: the competition, the weather or the economy, to name but a few. All of these impact the behaviour of the customer in real time and affect their sensitivity to price. 

You probably thought I meant “giving away too much discount” at the start of this article, but the impact of poor insight is much bigger than discounts or promotions. True, you could end up giving away too much in terms of margin but worse, you could lose your customers to the competition.

You also might be giving your loyal customers too big a discount, for no real gain or only attracting the cherry pickers from your competitors, not attracting your target segment. 

Whenever you get lots of retailers together in the same place, everyone talks about the industry, but secretly they’re all plotting the next innovation that will bring customers through the doors.

When I attended this year’s NRF Show it was clear that we are moving into a period where technology drives those innovations in the same way it did when the internet and eCommerce became mainstream. 

Personalisation grows up
Price and promotion are now moving, dynamic processes and personalisation are shouting the orders from now on. It is moving from a simplistic (and sometimes endless) stream of email promotions or product recommendations based on shopper buying habits, to a less cluttered and more refined approach.

Retailers are getting smarter in their ability to use personalisation that spans channel as well as make use of new data sources such as geo-location to inform the recommendations made – a truly personalised experience.

For those already on the journey, personalisation is generating measurable value – including revenue uplift plus increased customer acquisition and engagement. But as retailers have found, executing context-relevant personalisation at scale and across multiple channels depends on rewiring how their organisation works in key areas.

It all begins with gaining a real-time, 360 degree view of the customer – what they want, what they’ve bought in the past, their preferred engagement channels, what they’re trying to do right now.

Take a leap forward
If some of the ideas outlined above feel like they are a long way from how your company currently works, then there really is no time to waste. Don’t panic, but don’t wait either: it takes time to make the kind of changes outlined here, but the most innovative retailers have been working for some time to connect their systems together ‘under the hood’ – this is the first step to success.

It creates the springboard to experiment and innovate on pricing and promotions in a way that will differentiate you from the competition, generate brand loyalty and attract new customers.