Retail consultancy 360pi has announced its findings on the 2013 holiday shopping season following its "Retail's 2013 Holiday Winners & Losers" webinar. According to the company, 360pi determined that well-executed dynamic pricing strategies, such as those deployed by Amazon and Overstock, led to higher sales this holiday season as opposed to all-season discounting and other strategies.
Starting with Amazon's own assortment, 360pi tracked pricing of more than 8,000 products in eight categories across 23 retailers and five marketplaces from Nov. 15 to Dec. 2, taking close looks at the weeks leading up to Black Friday and Cyber Monday. 360pi continued to monitor pricing strategies throughout the holiday season for trending categories, including tablets, televisions and video games.
In analyzing reported sales results, 360pi was able to distill which pricing strategies were effective, and which were not. "The good news is that 2013 holiday sales were up 3.5 percent from last year, according to RIS," said Alexander Rink, CEO at 360pi. "However this average glosses over who were the retail leaders and laggards this holiday season. Faced with a very competitive landscape, fickle shoppers, and an abbreviated shopping season — which was further complicated by bad weather across large parts of the country — retailers were more challenged than ever to have the right price at the right time to convert the almighty shopper."
360pi rated retailers' overall financial performance for the 2013 fourth quarter on a scale from +5 (above expectations/excellent) to -5 (below expectations/very poor) based on third-party financial analysts' overall assessments. These included factors such as year-over-year sales for the 2013 fourth quarter vs. 2012 fourth quarter, actual earnings vs. expected earnings, and profitability. For retailers that have not announced 2013 fourth quarter results yet, financial analyst predictions were used.
Winning pricing strategies
Dynamic pricing: Dynamic pricing is central to Amazon's strategy throughout the year — the online giant does not necessarily aspire to be the lowest price, but rather the fastest follower of the lowest price. While most retailers change prices daily on 5 percent to 10 percent of their assortment, Amazon averages 15–20 percent. Amazon ramped it up even further over the holidays, conservatively making 3 million daily price changes through the month of November, including changing prices on almost a full third of their sampled assortment on Black Friday alone. Overstock's dynamic pricing prowess was equally impressive and both Amazon and Overstock delivered the best holiday results with their dynamic pricing execution, earning respective 3 and 2 scores from 360pi. Retailers that attempted to implement dynamic pricing but did so erratically (such as Sears) did not perform as well, according to the majority of analysts, and that earned Sears a -3 score.
Black Friday discounting: Retailers that discounted more deeply on Black Friday experienced better financial performance than those that maintained steady prices. Amazon (score: 3) and Overstock (score: 2) were heavy discounters on Black Friday and received high scores from 360pi. Amazon over-discounted far more than any other retailer, which could have negatively impacted its profitability; however, the online giant still fared well overall. Walmart actually raised prices for the sampled assortment on Black Friday, and this could have been a factor in the retailer's decreased financial performance. Walmart earned a -2.5 score from 360pi.
Post-Cyber Monday discounting: Retailers who kept discounts in place, such as Overstock (score: 2), Home Depot (score: 1), Rakuten.com (score: 1) and Costco (score: 0) generally performed better than those who did not, such as Office Depot (score: -3), Toys R Us (score: -2), Sears (score: -3), and hhgregg (score: -4).
Losing Pricing Strategies
Pre-Black Friday discounting: Some retailers, such as Target (score: -2), Office Depot (score: -3), Sears (score: -3) and hhgregg (score: -4), began discounting the week before Black Friday, and surprisingly, performed worse than the retailers that did not employ pre-Black Friday discounting.
All-season discounters: These retailers embraced promotions and discounts from the outset of the holiday season to its close, likely hoping incremental revenues would offset profitability erosion. hhgregg (score: -4) exhibited "all-season discounting" tactics throughout the season and reported an 11.6 percent decline in third-quarter holiday sales.
BOGOs (Buy One, Get One): Toys R Us (score: -2) most aggressively deployed BOGO strategies in selected all-important holiday categories, including video games, and also had higher base prices. Although BOGO pricing is a well-established strategy in retail, it is not as market-sensitive as dynamic pricing, and Toys R Us financial performance results indicate this strategy was not particularly successful.