Retail pricing is one of the most challenging pricing arenas. Here one has to simultaneously deal with huge amounts of investments in inventories, limited display space, seasonality and fashion trends, macro economic factors, competition, and consumer behavior. Those retailers that have mastered pricing have a strategic advantage over competition and are better positioned to weather fluctuations in economy.
Here are three rules of thumb for excelling in retail pricing
a. Beware of the FISH!!
b. Use signpost items as ambassador
c. Drive consumer choice through price optimization
In retail, FISH is first-in-still-here. Retailers need to churn their inventories quickly to maximize their GMROI and GMROF. If there is inventory that's moving at a rate slower than originally planned, it leads to blocked capital and blocked shelf space. A proper markdown pricing strategy ensures that inventory is clearing at the right rate.
"Signpost" items are those handful of items that are bought most often and carried by most retailers, and consumers have a good price recall on these products across retailers. Consumers will typically associate a retailer's price competitiveness across products based upon the how the prices on the signpost items compare against other retailers. Retailer have an opportunity to drive a value pricing message through these signpost items. Wal-mart is one retailer that executes this strategy very well. It has identified some 25 items (Milk, Bread, etc.) and it ensures that its prices on those items are lowest in the market. This helps Wal-mart strengthen it's "Every Day Low Pricing" positioning in the minds of the consumers.
When a consumer makes a decision to purchase an item, not only that particular item's price plays a role in shaping his/her behavior, but his/her behavior is also influenced by the prices of the other similar products available at the retailer. In this situation it is very important to make sure that your low profit products are not cannibalizing the sales of high profit products. Price optimization here focuses on pricing the entire portfolio of products simultaneously, thereby taking into account the resulting relative prices and substitution effects, with the goal of maximizing the overall profits.
Retail pricing practice needs a robust system support to manage and execute the entire strategy. The systems typically focus on three key areas:
- Data management (product attributes, competition prices, landed costs, product hierarchy management, etc.)
- Analytics (trends and predictive modeling/forecasting, supply chain snapsnots, customer voice, sales history, etc.)
- Work flow / Execution (Approval processes, Price publication, etc.).
In my next blog I will expand upon the different functional elements of pricing systems.
Here are three rules of thumb for excelling in retail pricing
a. Beware of the FISH!!
b. Use signpost items as ambassador
c. Drive consumer choice through price optimization
In retail, FISH is first-in-still-here. Retailers need to churn their inventories quickly to maximize their GMROI and GMROF. If there is inventory that's moving at a rate slower than originally planned, it leads to blocked capital and blocked shelf space. A proper markdown pricing strategy ensures that inventory is clearing at the right rate.
"Signpost" items are those handful of items that are bought most often and carried by most retailers, and consumers have a good price recall on these products across retailers. Consumers will typically associate a retailer's price competitiveness across products based upon the how the prices on the signpost items compare against other retailers. Retailer have an opportunity to drive a value pricing message through these signpost items. Wal-mart is one retailer that executes this strategy very well. It has identified some 25 items (Milk, Bread, etc.) and it ensures that its prices on those items are lowest in the market. This helps Wal-mart strengthen it's "Every Day Low Pricing" positioning in the minds of the consumers.
When a consumer makes a decision to purchase an item, not only that particular item's price plays a role in shaping his/her behavior, but his/her behavior is also influenced by the prices of the other similar products available at the retailer. In this situation it is very important to make sure that your low profit products are not cannibalizing the sales of high profit products. Price optimization here focuses on pricing the entire portfolio of products simultaneously, thereby taking into account the resulting relative prices and substitution effects, with the goal of maximizing the overall profits.
Retail pricing practice needs a robust system support to manage and execute the entire strategy. The systems typically focus on three key areas:
- Data management (product attributes, competition prices, landed costs, product hierarchy management, etc.)
- Analytics (trends and predictive modeling/forecasting, supply chain snapsnots, customer voice, sales history, etc.)
- Work flow / Execution (Approval processes, Price publication, etc.).
In my next blog I will expand upon the different functional elements of pricing systems.
Nice article Anshu!
ReplyDeleteAm waiting for the follow-up article.
well said
ReplyDelete