A few experts in the field are of the belief that promotions and individual pricing are indeed going to gain some momentum soon. Some companies have already started offering special prices to certain customers as a reward for their loyalty, so that they can keep coming back. It’s really nothing but a kind of loyalty program, but it definitely helps them feel that they are receiving something at a price that is much lower than what is being offered to the general public.
When retailers use these tools they often create some rules and they are fed into engines for price optimization. If regular prices are to be optimized, the rule that would come in to play is that the price would never be more that just over the competitor’s price. In fact, displaying disparity in pricing between competitors can help customers make a more informed choice.
This way, you cannot only keep a watch on what your competitors are up to, but also play within rules of pricing. Retailers do not want to place a small price on everything, in fact, it is just for a few items, for other items they would rather stick to individual and flexible pricing.
In the future, science is going to be a large part of how pricing strategies are arrived at. For now, psychology is depended upon. Price transparency is achieved by stores through a number of ways, they do this by using their real estate resources better, by ensuring that their store associates are used better, by making adjustments in the inventory assortments and by deploying new strategies from time to time to match the performance of competitors. Only those retailer who choose to move on to store formats that are smaller will do well, or they could also try to reassess the space and look at introducing new brands and categories. Buying capabilities of consumers are bound to shift and retailers pay heed to this by making a few adjustments in inventory and also train their store associates to deal with any pricing issues that may arise.
Trends have changed and today more than ever, pricing decisions are being tied up with loyalty programs. Retailers are well aware of what consumer perceive as being valuable, and they also know which items will be more difficult for them to compare prices of. For example, for milk and diapers, you cannot afford to mark up the rate substantially, but for private labels and other baby accessories, you could think about going slightly higher on the gross margins.
Pricing is indeed an art form, the objective of the strategy should be so that the consumer has really no idea what the actual price of the product is, therefore the pricing is done purely on a psychological level. Prices based on the knowledge of customer regarding price is a good strategy. While price transparency is extremely important, one must also know that consumers will never know the price of all products on shelves.
To sum up, art and science have to come together to reap profits. The times have changed, and it was seen that this time around during the recession as compared to the last time, a smaller number of retailers had to shut shop. One of the main reasons why this happened is because retailers today use both science and art to understand what their customer perceive as value, so they can offer them that, and science so that they can keep a better tap on margins. Both psychology and science have played an important role in this, as customer perception for value is paid heed to and also margins are calculated well after price optimization.