The condition of retail pricing control and why it needs fixing
The pandemic and vaccine deployment are unquestionably influencing the economic landscape of 2021. Numerous retail executives anticipate that it will require anywhere from one to five years to regain pre-pandemic levels.
Health and safety (78%), digital acceleration (88%), supply chain resilience (78%), and cost structure realignment (72%), according to Deloitte, are the top investment priorities of retail executives for 2021.
It is now more important than ever to give pricing the attention it deserves.
The significance of pricing in the retail sector in 2021
Retailing in the contemporary era is a challenging endeavor, and the complexity of pricing continues to increase, making it increasingly difficult to maintain pricing effectively.
Pricing becomes increasingly challenging as a result of fluctuations in consumer demand, inventory levels, assortment, competition, and selling channels, as well as the erosion of boundaries between physical and online stores.
A variety of factors, such as tariffs, taxes, and costs, as well as rapid changes in the competitive landscape, increased consumer transparency, complex product and product size relationships, different regions, seasons, and weather, sophisticated customer segmentation, and brand alignment, all influence everyday pricing.
It is nearly impossible to maintain or improve pricing, let alone optimize prices to provide the “best” everyday price, in the absence of the tools that consolidate all of this data and convert it into actionable information.
Nevertheless, it is crucial to accurately determine this price, as it serves as the foundation for all other pricing (including promotional, markdown, product sizes, vendor discounts, and clearance).
The number of variables that influence the final price for consumers is continually expanding. And with in-store prices fluctuating on a weekly basis and online prices fluctuating on a daily basis (on average every three minutes for retail titans), pricing is evolving at a pace that surpasses the capabilities of traditional processes, systems, and teams.
Obtaining the price to the final contact point is frequently a challenge for numerous retailers. Therefore, it is imperative that we examine the obstacles that retailers encounter when attempting to effectively manage their pricing.
Key areas in which retailers are experiencing difficulty with price management
Integration of Systems: Numerous retailers have acknowledged the significance of business tools and have made investments in POS, e-commerce, CRM, and ERP systems. Nevertheless, the integration of these tools is at best clumsy, as critical data becomes isolated, necessitating manual, error-prone processes to release and extricate any value.
Pricing Transparency: Numerous pricing teams operate in the background, providing sales teams with a final figure for implementation. This black-box approach fails to establish trust, as it is impossible to determine the source of the number. Pricing teams must adopt end-to-end pricing transparency, which is characterized by the provision of clear historical data to illustrate their pricing narrative and provide a clear explanation for their pricing decisions. Then, your sales team is better equipped to defend them. The majority of retailers are unable to accomplish this with their present technology setup.
Pricing Discipline: Clarity and discipline are essential for ensuring that your strategic pricing strategy is implemented. Nevertheless, retailers seldom furnish sales with pricing rules and guardrails to guarantee that they seldom deviate from the established course. Unjustified discounts can erode margins, which can be safeguarded by establishing clear pricing guidelines.
Processes: Pricing is frequently executed across multiple Excel sheets, email correspondence, and manual keying-in of price changes, each step of which is susceptible to human error. The management of this process necessitates a 24/7 effort, resulting in pricing experts spending their time as costly data handlers rather than strategists.
Competition Data: While it is essential for e-commerce businesses to be able to respond to their competitors in real time, the majority of retailers lack a systematic approach to acquiring or utilizing this data.
Price Waterfall Visibility: Frequently, distinct teams are responsible for the management and execution of regular pricing and promotion/markdown pricing. You are unable to observe the relationship between one price category and another or the impact of one on the other in the absence of visibility of your entire price waterfall and a view of pricing throughout a product lifecycle. Typically, the consequences are only acknowledged after errors have been committed.
Product Relationships: General business intelligent tools, such as ERPs, do not prioritize price requirements; as a result, they are limited to a single product hierarchy, which necessitates that pricing be limited to the item or merchandise level.
Non-Pricing Variables and Relationships: It is essential to be aware of the factors that should be taken into account when determining the appropriate price, including costs, demographics, channel, store location, product location, inventory status, seasonality, ad placement, vendor allowances, shipping times and charges, and customer expectations. The majority of retailers do not incorporate this type of data into their pricing tools, and the collection of such data would be a monumental undertaking, as it would be outdated by the time it is utilized.
Agility: Due to the presence of non-integrated systems, isolated data, insufficient analytics tools, and time-consuming processes, the majority of retailers are sluggish to respond to the market. This is a clear disadvantage in a world where prices fluctuate on a daily basis.
Analytics: It is exceedingly uncommon for conventional business intelligence tools to incorporate pricing capabilities, and even more uncommon for them to provide real-time insights or drillable views.
Customer Segmentation: It is crucial to maximize profits by targeting consumers with segment-specific pricing, regardless of whether they purchase online or in-store. Pricing is most effective when it is driven by consumer behavior. However, the majority of systems are unable to price at the consumer segment level.
Discount Price Management: Although promotions are a common revenue driver in retail, the actual comprehension of the overall impact of the promotional price on margin and revenue is challenging due to the involvement of numerous teams (vendors, merchants, finance, stores, and executives) in pricing and item selection. Is there an incremental nature to the promotion? Has it resulted in an increase in category sales? Alternatively, did it result in a decrease in the aggregate revenue? Additionally, the analysis is further complicated by the fact that promotions are often tiered, such as the simultaneous use of coupons and discounts.
Despite its frequent neglect, clearance price management is a rapid method of enhancing overall revenue and margin through pricing. However, it necessitates a centralized process, automation, rules, and objectives in order to be executed correctly. You require the drill-down tools to determine the quantity of each of your categories that are being sold on clearance and whether it is causing a decline in that category. Additionally, you require the analytics to assist in identifying opportunities for revenue growth and an increase in margin.
Predicting Pricing Impact: It is not uncommon for price changes to be implemented without consideration of the potential cannibalization of profits in other areas of the portfolio, as well as the estimated impact on unit volume, margin, revenue, customer segment, category/taxonomy, and customer segment. In an effort to achieve this, certain retailers are employing machine-learning models; however, they frequently employ the same fundamental algorithms for all categories and employ industry-standard attributes. Typically, new inputs, such as tariffs, COVID, and customer-specific attributes, are not taken into account.
The importance of pricing is paramount for survival.
Retailers require the capacity to consolidate disparate data, present it in a comprehensible manner for analysis, and transform it into actionable insights. This instrument or solution should ideally encompass pricing management and execution, which will actively assist in the identification of profit drivers and opportunities. Retailers must prioritize price and allocate resources to strategies and tools that optimize profits for each transaction.
In order to maintain a competitive edge in a world of ever-increasing pricing complexity, it is imperative to invest in a single system that analyzes, manages, simulates, and optimizes your pricing and promotions across all channels, including your ERP and CRM.