Gone are the days when retailers use to compete only based on price for gross margins and sales. EDLP (every day low pricing), halo effects and loss leader pricing do come in to the picture yes, but today price transparency is extremely important when it comes to understanding consumer buying behavior. Some retailers use succinct terms to define their pricing strategy, others on the other hand will suggest that their prices have been decided depending upon optimization, analytics, personalization and also understanding which add ons work best with customers.
Strategies for Online Merchants. Retailers have actively started doing business in a world that is transparent, it’s too early to tell what the impact is going to be. Zone pricing and localized pricing do not exist anymore as the world is going digital. Service is what’s going to be the differentiating factor. The simple reason is that customers are always looking for more than just price, they are looking for value. The key lies in identifying what that is, and how are you going to get it across to your consumers. Pricing strategies should not only be about price, but they should offer differentiation by looking at innovation, style and service. Start by understand what it is that consumers perceive as value, instead of focusing just on low prices.
Price optimization is now a thing of the past, and a new era has emerged since. The world retailers do business in is consumer centric and multi-channel, however, there are a number of tools available, which help retailers address variables of pricing. Optimization technologies are used to help retailers maximize returns. Retailers today use a host of optimization technologies to get the most advantage in terms of returns. For the last few years now, retailers have started investing in optimization technologies and have experienced margin benefits as well as significant top line growth. Earlier, this insight was not possible. A combination of retail expertise, hardware innovations, predictive analysis, has given retailers the ability to adjust prices that fit various brand strategies and also suit different shops and shopper profiles. Margin gains can be grown by focusing on three things and that is selling at prices that are healthy, making way for fresh merchandise and also increasing customer interaction.
As these new tools for pricing are adopted, the issues that come to the surface include, personalized prizing and cross channel pricing. Customers demand that prices be the same both online and in shops. This simply shows that more collaboration is the need of the hour. However, this could be a little tricky, as price drivers vary depending on the channel, while one may be leading in one, it may be a loss leader in another. This makes it really tough for online retailers as store prices are automatically higher, given operating and shipping costs that are involved. When retailers follow a consistent price and through a single channel, this leads to missing a number of opportunities out there. Prices should be aligned to the demand in a certain channel, when there is an increase in sales. Multi channel retailers will benefit from adopting a strategy that is two pronged, price should be consistent to channels, but once in a while should be coupled with promotions and independent prices.
Understanding consumer expectations is where success lies. A few items in a retailers assortment that are in high demand, competitive and recognized should follow independent pricing, however, they could choose to carry on with independent pricing for other items in the kitty.