Last year, Parker Avery began discussing two different approaches to pricing strategy and the driving forces behind them (“The Two Tides of Retail Pricing: Riding with Caution”):

– One wave is driven by price transparency due to increased customer touch points to have a unified or consistent price across channels.
– The other is driven by price optimization software and involves the segmentation and differentiation of pricing and related messaging across customers.

Both of these approaches have unique benefits and opportunity costs – as well as downsides – but we will focus on the consistent price approach here. Let’s look at some core strategies for executing a single-price model, as well as some notable advantages.

Capitalize on the Simplicity
With the recent study “The Pricing Paradox” by RSR highlighting that as many as 12% of retailers are returning to a single price policy across all channels, it is a significant though still small strategic direction. Retailers utilizing this strategy should focus on detailed and flawless execution, including:
• Good, Better, Best
• Category Roles
• Promotional Strategy
• Private Label strategy
• Competitive price positioning

With this simplified strategy and consistency of assortment and prices across the brick and mortar channel, retailers should optimize their processes and capitalize on productivity gains. This can include configuring better team structures, schedules, approval methods (escalation paths), implementing locks on changes, removing red tape, and opening lines of communication. This leaves ample time to focus on execution and creativity, both in product design, creation and sourcing, as well as promotional offers and brand differentiation.

In this execution and differentiation-driven environment, teams need to think cross-functionally and with their “company hats on.” Teams that are comprised of individuals from several functional areas should meet regularly and ensure that objectives such as margin dollars, unit sales, margin rate, and competitive positioning are being met and that any opportunities are seized as quickly as possible. One such strategy is to have weekly meetings between members of Finance, Merchandising and Planning aligned to each Buyer desk.

The end result with an execution-focused environment is to reduce errors and remove obstacles, increasing organizational agility and the delivery of value to the customer.

Differentiate
Arguably the most significant opportunity among retailers employing a consistent price strategy is the ability to differentiate from their competitors who use segmented pricing. Over the next 5 years the industry will find out whether the millennial generation will accept price discrimination (as it does with airfare and hotels) or whether they will speak with their wallets and demand retail price consistency. With nearly 40% of millennials (and 34% of Generation X.) citing an “extreme dislike” for price discrimination, the opportunity to be consumer friendly and endear yourself to these generations – who will have more spending power than any generation in history – should not be underestimated.

There are 3 main objectives that should be nailed to capitalize on differentiation:
• Know what your competitors are doing
• Conduct market research
• Tell your customers where you stand

Robust competitive information and market research will allow you to identify what areas of the business or product matter most to your target market, as well as what your direct competitors are executing in that space and how successful those efforts have been. Once the top drivers of customer behavior have been ascertained, a coordinated marketing and merchandising push should follow to ensure your customers know that you can deliver exactly what they are looking for, and that they can shop with confidence knowing that you will not treat them differently (like your competition may).

Embrace Technology to Support Omnichannel
If you have not already done so, this should be the first priority of your organization as a whole. Having a consistent price removes the software requirements for differentiation, the likelihood that customers will ever be disappointed with “showrooming” your own site (while in your store.), as well as many of the complications with moving inventory across geographical areas, which may have different costs to serve.

Even simple processes like pick-up-in-store or brick and mortar returns of items purchased online can be readily managed by many of today’s warehouse management and POS systems. Once the enterprise supports the idea of seamless channel integration from customer experience, process, and systems perspectives- look to expand customer transactional and fulfillment methods such as ship-from-store, store-to-store, and mobile transactions.

With a simplified pricing approach and a lack of systematic constraints- omnichannel sales execution can deliver significant ROI without many of the negatives associated with retailers who are caught differentiating.

With that focus in mind there is still one remaining piece of technology to execute:
• You still need to optimize.

Even with a consistent price strategy, price optimization software can measure elasticity and customer data worth millions of dollars a year in incremental margin. Further, the tools can not only recommend price increases with scientific precision, they can also recommend price decreases on products that may be priced out of your customer’s tolerance. Especially pertinent to retailers relying heavily on an “art” approach to pricing, optimization software can take into account numerous factors and product pricing relationships- allowing a more sophisticated and profitable set of prices overall.

Final Word
Retailers who choose a consistent price policy have great opportunities to differentiate and streamline processes across their organization. Through effective time management and a focus on the execution, they can deliver faster and spend more time picking better products and aligning themselves to key customer segments. They jury is still out on which way the market will flow, but being close to your customers and differentiated from your competitors will always be in demand.

– Chris

Published On: March 5, 2015Categories: Josh Pollack, Pricing, The Parker Avery Group