Marketing
The state of the union in retail price management and why it's a problem to be solved
John Gilbo, a retail and e-commerce pricing expert at Pricefx, who formerly led pricing strategy at Kirkland’s, Academy Sports + Outdoors, and Safeway, shares insight on why retailers need to focus on pricing strategies.
August 3, 2021 by John Gilbo
2021's economic landscape is undoubtedly being shaped by the pandemic and vaccine rollout, with many retail executives expecting it to take them anywhere between one and five years to recover to pre-pandemic levels.
According to Deloitte, retail executives have named as their top investment priorities for 2021: digital acceleration (88%), supply chain resilience (78%), health and safety (78%) and cost structure realignment (72%).
If ever there was a time for giving pricing the consideration it deserves, it's now.
The importance of pricing in retail 2021
Retail in today's world is tough, and as the complexity of pricing gathers pace, maintaining pricing effectively is one of the harder tasks.
Changes in consumer demand, inventory levels, assortment, competition and selling channels (not to mention the blurring of lines between physical and online stores) only makes pricing more difficult.
Everyday pricing is affected by a plethora of factors, including tariffs, taxes and costs; fast changes in the competitor landscape; increased consumer transparency; complicated product and product size relationships, different regions, seasons and weather; sophisticated customer segmentation; and brand alignment (to name a few).
Without the tools that bring all this data together and then turn it into something actionable, it's almost impossible to get (and stay) on top of your pricing, let alone optimize prices to deliver the 'best' everyday price.
However, getting this price right is essential because all your other prices (promotional, markdown, product sizes, vendor deals, clearance) are built off it.
The list of factors impacting the end price to consumers is only growing. And with in-store prices changing multiple times a week and online prices changing several times a day (on average every three minutes for retail giants), pricing is moving much faster than classic process, systems and teams were built for.
Just getting price to the end touch point is often a challenge for many retailers. So, let's take a closer look at what is getting in the way of retailers managing their pricing effectively.
Key areas retailers are struggling with price management
Systems Integration: Many retailers recognize the importance of business tools and have invested in POS, e-commerce, CRM and ERP systems. However, integration between these tools is clunky at best, with crucial data becoming siloed, requiring manual, error-prone processes to release and extract any value from.
Pricing Transparency: Many pricing teams work their magic behind the scenes, just presenting a final number for sales teams to deploy. This black-box approach does nothing to install trust as no one can see where that number came from. Pricing teams need to embrace end-to-end pricing transparency that provides clear historical data to show your pricing story and clearly explain why you're at where you're at with price. Then your sales team is in a better position to defend them. Most retailers can't do this with their current technology stack.
Pricing Discipline: Ensuring your strategic pricing plan is adhered to requires discipline and clarity. However, retailers rarely provide sales with pricing rules and guardrails to ensure they rarely have to step off the designated path. Clear pricing guidelines can protect margins being eroded through unwarranted discounts.
Processes: All too often, pricing is performed across multiple Excel sheets, email communications and manual keying-in of price changes — each step at risk of human error — and management of it requires a 24/7 effort, meaning pricing experts spend their time being expensive data handlers rather than strategists.
Competition Data: The ability to react to the competition in real time is crucial (especially for e-commerce), but most retailers have not got a systematic way of obtaining or responding to this data.
Price Waterfall Visibility: Regular pricing and promotion/markdown pricing are often managed and executed by different teams. Without visibility of your entire price waterfall and a view of pricing throughout a product lifecycle, you can't see how one affects the other or the relationship of one price bucket to another. Impacts are usually only recognized after mistakes are made.
Product Relationships: General business intelligent tools like ERPs don't have price requirements as their main objective and, therefore, only allow for one product hierarchy, meaning pricing can only ever be at the item or merchandise level.
Non-Pricing Variables and Relationships: Knowing where to price up or down based on costs, demographics, channel, location of store, location of product, inventory status, seasonality, ad placement, vendor allowances, shipping times and charges, and customer expectations is key. Most retailers don't have this kind of data integrated within their pricing tools, and to gather it would be a mammoth task, with data being out of date by the time it's put to any use.
Agility: Burdened by non-integrated systems, siloed data, insufficient analytics tools and time-consuming processes, most retailers are slow in their response to the market. Which, in a world where prices change multiple times a day, is a distinct disadvantage.
Analytics: It is rare that traditional business intelligence tools have embedded capabilities for pricing, and rarer still that they deliver real-time insights or drillable views.
Customer Segmentation: Pricing is most effective when based on consumer shopping behavior, whether online or instore, so being able to target them with segment-specific pricing is essential to maximizing profits. But most systems can't price at the customer segment level.
Discount Price Management: While promotions are a popular revenue lever in retail, with many teams (vendors, merchants, finance, stores, executives) weighing in on pricing and item selection, actually understanding how the promotional price impacts overall impact to margin and revenue is tricky. Is the promotion incremental? Has it improved category sales? Or did it degrade overall revenue? Promotions are also frequently layered (for example, coupons and discounts at the same time), further complicating analysis.
Clearance Price Management: While frequently overlooked, this is one of the fastest ways to improve overall revenue and margin through pricing. But it requires a centralized process, automation, rules and objectives to do right. You need the drill-down tools that tell you how much of each of your categories you're selling on clearance and whether it's pulling that category down, and the analytics to help you find opportunities for margin improvement and increased revenue.
Predicting Pricing Impact: Frequently, price changes are made without knowing the estimated impact on unit volume, margin, revenue, customer segment, category/ taxonomy or whether a change might be cannibalizing profits elsewhere in the portfolio. Some retailers are using machine-learning models to attempt this, however, they often have the same basic algorithms for all categories and use standard industry attributes. New inputs, like tariffs, COVID, customer-specific attributes, are not typically considered.
A focus on pricing key to survival
Retailers need the ability to pull together disparate data, present it clearly for analysis and turn it into actionable insights. Ideally this tool or solution includes price management and execution, and that actively helps them uncover profit drivers and opportunities. Retailers need to have price at the top of their priority list and invest in the strategies and tools that will help them maximize profit for every transaction.
If you're serious about remaining competitive in a world of ever-increasing pricing complexity, you need to invest in one system that analyzes, manages, simulates and optimizes your pricing and promotions across all channels, including your ERP and CRM.
The future of retail, and your survival, is in price.
John Gilbo is a retail and e-commerce pricing expert at Pricefx. He formerly led pricing strategy at Kirkland's, Academy Sports + Outdoors, and Safeway.
About John Gilbo
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