Don’t Just Cut Prices. Craft Them With Dynamic...
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Don’t Just Cut Prices. Craft Them With Dynamic Pricing. E-BOOK Sponsored By
Transcript of Don’t Just Cut Prices. Craft Them With Dynamic...
Don’t Just Cut Prices. Craft Them With Dynamic Pricing.
E-BOOK
Sponsored By
Introduction
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INTRODUCTION
People today no longer go shopping — they are always shopping. Empowered and in control, they are dictating the change cycle and driving the speed of retailing. Loyalty is renewed, or revoked, with each interaction.
Online innovators such as Amazon and new market entrants such as Jet.com continue to shake up the retail landscape by presenting consumers with a myriad of products across categories and offering highly competitive prices. Specifically, these retailers have been early adopters of dynamic pricing, which is the process of frequently adjusting prices based on market demand and competitive conditions.
The power of Amazon and other retailers doesn’t just lie in their ability to shift prices based on the above factors. They also have the ability to gather data and create insights to ensure their pricing strategy, brand image and customer promise are executed successfully.
In a time when business strategy has intersected with data science, all retailers have the opportunity to tap into those demand signals, create insights and respond faster than ever using real-time competitive and market intelligence.
This e-book will spotlight how retailers can turn pricing disruptions into opportunities with dynamic pricing that’s intelligent and scalable by leveraging five key tenets to respond at speed and scale with predictable outcomes.
1. Understand Your Customers
2. Identify Meaningful Competitors (and Your
Customers’ Affinity for Them)
3. Be Strategic, Be You
4. Use Data, Science and Technology
5. Make Intelligent Decisions in Real Time
Empowered shoppers are dictating the change cycle and driving the speed of retailing.
The Five Tenets of Dynamic-Pricing
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01 Understand Your Customers01
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UNDERSTAND YOUR CUSTOMERS
PRICING PERSPECTIVE
PRICE IS AND ALWAYS HAS BEEN the #1 influencer on the final purchase decision. It is no accident that the most prominent features on a mobile product search are image and price. For consumers, getting a great price elicits a strong emotional response. Through a survey of 5,000 American consumers, Retail Systems Research (RSR) confirmed that 41% of consumers still enjoy the thrill of finding great deals and sales.
The exposure of retailers’ prices has driven a fear that the lowest price on every item is always the answer. Yet, the power of pricing isn’t just in the price. It’s understanding customers and being aware of the situational environment. What is the
shopping journey? Why do your customers buy from you? What influences their decision? How do they react to price changes? How do they react to competitor price changes? What items are important to them?
Data and science provide retailers with additional insights into these questions. In fact, consumers’ overall price-sensitivity can vary by store, region, season, weather, type of item and competitive influence. There are a myriad of factors driving consumer behavior that retailers need to take into account. It’s critical to uncover the real customer signals and be able to separate them from the noise.
By understanding your consumers, their browsing and buying behaviors, and how you differentiate among your competitors, you will establish a strong foundation for a dynamic pricing strategy.
41% of consumers still enjoy the thrill of finding great deals and sales. — Retail Systems Research
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Identify Meaningful Competitors02
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PRICING PERSPECTIVE
ONCE RETAILERS HAVE a solid understanding of their customers’ shopping habits and pricing perspectives, they need to branch out by identifying competitive retailers that their consumers care about. After retailers identify these key competitors and comparable items, they need to track and analyze their pricing tactics.
For years, retailers have had access to information that allows them to know which items and which markets drive consumer demand. They could also determine the relative position against their competition. New science-based analytics goes beyond that, empowering retailers to understand which rival businesses, in which regions, influence
consumer demand throughout the season, month or day. New science analytics also takes the view of the consumer when comparing competitive pricing. As well as showing the relative positioning, it highlights the consumer reaction to both your price changes and your competitors’ price changes.
Combining consumer insights with competitor analysis and operationalizing the competitive data enables retailers to acquire a holistic view of their business and category, determine which competitors are influencing consumer demand by category and selling channel, and ultimately, determine which products they should change prices on.
IDENTIFY MEANINGFUL COMPETITORS (AND YOUR CUSTOMERS’ AFFINITY FOR THEM)
Not all competitors affect consumer demand equally.
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DYNAMIC PRICING HELPS EBAGS ACHIEVE E-COMMERCE EXCELLENCE
Some e-Commerce pureplay retailers have implemented business strategies and processes that allow them to be more competitive against their online and omnichannel counterparts. Because digital is in their DNA, they sometimes have the ability to be more agile, and respond more quickly to changing market conditions.
Despite its e-Commerce roots, eBags faced numerous challenges that were hindering potential growth. For example, the eTailer used manual processes to implement price changes across its diverse product assortment. By partnering with Revionics, eBags is
now able to delve into streams of data “to more systematically ensure that we [can] optimize prices, not just to stay competitive with the marketplace, but to drive sales and the bottom line,” said Steve Neptune, SVP of Financial Planning and Strategy at eBags.
Initially, eBags used Revionics to manage base price planning and optimization, and began expanding dynamic pricing to different product categories and eventually, its broader assortment. With dynamic pricing, the retailer can analyze merchandise available in-house and across competitors, and can focus less on
product categories and more on price-sensitive items, according to Neptune. “We are making smarter pricing decisions and revising conventional wisdom internally.”
For example, the eBags team would previously focus their pricing strategies based on a handful of larger competitors and under-emphasize the impact of a broader group of smaller competitors, Neptune noted. A digital dashboard publishes higher-level KPIs, and employees have access to customer and competitor data, empowering eBags to make daily price changes.
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03 Be Strategic, Be You
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The top strategic objectives for corporate pricing strategies are:
— Retail Systems Research, Pricing 2015: Learning To Live In A Dynamic, Promotional World
BE STRATEGIC, BE YOU
RETAILERS ARE in the midst of a pricing paradox. Although they recognize the need to remain competitive in an increasingly saturated marketplace, they also need to maximize profits and distinguish themselves from the clutter.
When asked to share their top strategic objectives for corporate pricing strategies, retailers spotlighted the need to maximize gross margin (49%), while still conveying their value proposition (46%), according to RSR Research.
These data points confirm the need to collect and analyze data and to be clear about the value proposition that the retailer delivers. They must define the role of the category, the items, and the stores and set their pricing strategies
accordingly. After all, there may be times where a retailer may not need to resort to lowering prices to remain competitive. If a retailer is known for its exemplary service or unique product lines, it won’t have to rely as heavily on slashing prices to keep pace with competitor changes.
Retailers must not lose sight of who they are. With only rampant price matching, retailers consistently lose margin and will become like everyone else. In a consumer’s heart, if you are like everyone, you are no one.
Maximize gross margin
Convey value proposition
Drive demand
49% 39%46%
PRICING PERSPECTIVE
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04 Use Data, Science and Technology
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PRICING PERSPECTIVE
NEARLY HALF (48%) OF RETAILERS SAY keeping pace with competitors is their top operational challenge for setting prices, according to RSR.
As the e-Commerce and overall retail landscape continues to expand, retailers are faced with a plethora of competitors eager to offer the right mix of products, at the right price and across all channels. These new and existing competitors can vary by merchandise category and selling channel.
However, it’s impossible for retailers to effectively compete against all competitors across all product categories. Instead, retailers
need data, information and science to tell them which competitors truly matter for specific areas of the business — e-Commerce or a specific store location — and make strategic pricing decisions based on these insights to avoid the race to the bottom.
Other obstacles also remain ever-present. Retailers’ inability to forecast the impact of pricing decisions is an example — this was noted as a challenge by 42% of RSR survey respondents.
Optimal dynamic pricing solutions provide boundaries around competitive price reactions based on an understanding of which competitors are important and what a meaningful
competitive price changes is, and empower retailers to forecast the financial outcome of price changes before they’re rolled out. This allows them to determine whether dropping a price for a specific product or category will truly influence bottom-line growth.
USE DATA, SCIENCE AND TECHNOLOGY
48% of retailers say keeping pace with competitors is their top operational challenge for setting prices.— Retail Systems Research, Pricing 2015: Learning To Live In A Dynamic, Promotional World
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Operating more than 40 brand outlet stores, tool retailer CPO Commerce needs to not only keep pace with consumer trends and preferences, but also exceed its competitors, which span across omnichannel retailers and pureplays like Amazon. This is especially true when it comes to CPO Commerce’s pricing strategies, which need to be competitive but still turn a profit.
Because CPO Commerce operates in a highly competitive, price-transparent environment, the retailer requires a solution that touts self-learning demand models that reflect shifts in shopper
CPO COMMERCE GETS A COMPETITIVE EDGE WITH DYNAMIC PRICING
and competitive behavior. By adopting Revionics Price Optimization, CPO Commerce will be able to leverage internal and external Big Data, and make more precise pricing decisions at the product or category level.
“As a fast-growing online retailer, it’s critical to our success to have data-driven dynamic pricing that matches up with shopper and competitive behavior,” said Girisha Chandraraj, SVP and Chief Digital Officer at Essendant and Chief Operating Officer for CPO Commerce. “This will allow us to drive both shopper and shareholder value.”
With Revionics, CPO Commerce also is able to make more intelligent and profitable pricing decisions. The retailer can calculate the financial outcome of potential price strategy changes, and measure the cost change impact before rolling them out. This intelligence allows team members to see the bottom-line impact of price changes without acting solely based on past experiences or gut feel. Instead, hard data and intelligence guides CPO Commerce, providing detailed insights on when to match prices, lower prices or disregard competitive price changes, leading to top-line growth and margin improvements.
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Make Intelligent Decisions in Real Time05
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PRICING PERSPECTIVE
BEING SMART DOES NOT MEAN being slow. Today’s competitive environment requires retailers to make several pricing decisions throughout the day. Automating price matching was the early answer to this. Now, retailers need to evolve beyond this tactic.
Retailers like Amazon and Jet.com have the infrastructure in place to institute price changes hundreds of times throughout the day. Their decisions are not based upon simple price matching. These pricing tactics have come to light, driving retailers to acquire the same level of agility. Supporting this point is the 75% of retailers who say the overall volume of price changes has somewhat or significantly increased
over the past year, according RSR. This is a significant jump from 2014, when only 55% of retailers said the same.
To be successful, retailers need to gather completive data and consumer insights and use their strategies and science to re-optimize prices, all in real time. They must intelligently determine when to act, or not to act, in seconds.
For retailers to be confident of any change, they need to understand the context and reasoning behind the recommendations they are acting on. Best-in-class science-based solutions not only build recommendations based on a myriad of data points, but they deliver them in a manner that is relevant and easy-to-digest for retail executives.
Exception-based workflow, intuitiveness and transparency are keys to success. It highlights where retailers need to spend their precious time. And if the price change is recommended with no additional support, it is easy for executives to act on intuition and simply ignore science-driven recommendations.
Science-based pricing tools, can help retailers crunch the hard numbers based on competitive price movements, consumer demand and internal pricing strategies. Best-in-class pricing tools help retailers filter out data noise and identify key ways to shift pricing online and in-store, boost customer satisfaction and maintain optimal financial performance.
MAKE INTELLIGENT DECISIONS IN REAL TIME
Retailers need to turn consumer and competitive data into
actionable insights that validate their pricing strategies.
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Conclusion
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CONCLUSION: CRAFT PRICES CONTINUOUSLY AND INTELLIGENTLY
CONSUMERS ARE using an increasing number of digital tools and resources to make buying decisions, but the art of retailing is still an innately human, interpersonal experience.
And while dynamic pricing solutions are invaluable because they help take the guesswork and manual processes out of pricing strategies, the power of this technology lies in the fact that it helps retail executives make more intelligent, science-based decisions that drive sales and increase margin and profits while pricing closer to consumer demands.
Dynamic pricing solutions provide the data and information that help team members augment their personal knowledge and day-to-day
processes. Retailers can no longer rely on manual data mining and analyzing information in Excel spreadsheets. To effectively compete in the omnichannel landscape and implement price changes on the fly, retailers need to embrace technology.
Speed is undoubtedly key; it is more important than ever for retailers to anticipate and actively respond to competitor price changes and shifts in consumer demand. However, retailers need to understand when to respond and why, and under what conditions. Only then will retailers be able to make intelligent, data-driven pricing decisions that drive sales and maximize bottom-line results.
Want to learn more about how your retail business can take a data-driven approach to pricing and promotions? Watch this video to find out!Related resources:
Dynamic Pricing Webinar: Omni-Channel Shoppers Demand It: Real-Time Pricing – Anytime, Anywhere
2016 Pricing Regroup: To Hike Or Not To Hike
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Revionics is a proven leader in End-to-End Merchandise Optimization solutions. Over 40,000+ retail locations around the world optimize with Revionics across 18M+ products and 2.4B+ SKU/store combinations are modeled weekly. Revionics empowers retailers around the globe to profitably execute a data-driven omni-channel merchandising strategy by utilizing one of the most comprehensive set of shopper demand signals to increase financial performance and improve customer satisfaction. Revionics’ solutions are powered by unmatched demand-based science and advanced predictive analytics to help ensure retailers have the right product, price, promotion, placement and space allocation to drive business performance and seamless shopper experience — online, in-store, social and mobile. Delivered on a scalable, SaaS-based platform, Revionics solutions offer real-time insights and dynamic decisions at speed, scale and frequency, while providing fast ROI. Revionics has been recognized as a Deloitte Technology Fast 500™ and JMP Securities’ Hot 100 Software Company. To learn how you can compete more profitably, please visit www.revionics.com.
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Retail TouchPoints is an online publishing network for retail executives, with content focused on optimizing the customer experience across all channels. The Retail TouchPoints network is comprised of a weekly newsletter, special reports, web seminars, exclusive benchmark research, and a content-rich web site featuring daily news updates and multi-media interviews at www.retailtouchpoints.com. The Retail TouchPoints team also interacts with social media communities via Facebook, Twitter and LinkedIn.
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