Recent events have shown retailers the importance of being prepared for external circumstances. The start of the pandemic brought about unexpected shortages in toilet paper and hand sanitizer, as well as a dramatic shift towards online channels. In Texas, the February winter storm resulted in a fury of store closings, canceled pickup times and spoiled products when businesses lost power.
Whether it’s short-term disasters like the Texas winter storm or prolonged disruptions like COVID-19, these happenings can significantly alter a “normal” pricing strategy, especially as inventory and consumer demand fluctuates. That’s why retailers must understand how extreme events impact demand prediction and implement robust retail pricing strategies to prepare for any crisis.
1. Identify Key Items and Their Affinity Products
First, retailers should always identify the most important items during a crisis and their affinity to other products. Extreme events can impact these models and affect demand significantly, so it’s key that retailers can identify new consumer needs quickly and adjust to daily changes of inventory.
For example, natural disasters usually create a short-term demand for necessities like bottled water and canned goods. COVID-19 caused a long-term effect on the demand for certain products, such as men’s hair clippers and home workout equipment.
Retailers who conduct a strategic item and performance analysis will be able to determine these key items and new affinities and be prepared to execute an effective pricing strategy quickly.
2. Manage Prices for Consumers During Challenging Times
Retailers can take advantage of analytics to understand how consumers behave during these events and what they can do to maintain customer trust with pricing. Not only do the right products need to be on the shelves, but there also needs to be the right pricing options. Otherwise, they risk damaging their brand image, especially when consumers are price sensitive.
During challenging times, retailers should be proactively and reactively managing prices. It’s a customer-driven attitude that will preserve price perception and win customer loyalty in the long run.
3. Implement Competitive Intelligence Capabilities
Consumers will also consider the prices of competitors to understand the price point the market has to offer on comparable items. To monitor what others are doing in a crisis, retailers can implement competitive intelligence and dynamic competitive pricing capabilities.
Competitive pricing data will give retailers an accurate view of how other businesses are pricing products based on changes in demand, and empower them to make the best pricing decision for both their business and consumers.
4. Enforce Anti-Price Gouging on Key Products
Fair pricing is the foundation for every retailer’s brand value, but in times of crisis, it can get a lot more challenging. Disruptions can lead to tough decisions, and retailers must have strategies in place to avoid price gouging.
How do retailers overcome this challenge? The answer is by adopting new pricing models quickly to ensure fair pricing. These models can implement rules and price locks to systematically enforce anti-price gouging on key products.
Retailers can also use AI to compute the impact of price on consumer behavior and make nuanced pricing adjustments to account for new market conditions. By enforcing anti-price gouging, retailers can serve their communities and still protect profitability.
5. Structure and Monitor Key Markets Prone to Natural Disasters
As weather events become more common, establishing zones will allow retailers to better structure and monitor key markets prone to natural disasters, such as the Gulf Coast during hurricane season. Retailers can use their data to create tailored zones that support prices, promotions and markdowns based on consumer behavior, reflecting regional differences. Zoning capabilities allow retailers to review demand changes at the local level and have a plan in place for ongoing disruptions.
Retailers Play a Key Role in the Face of Disruption
There are challenges and opportunities when it comes to unexpected events. Retailers play a key role in serving customers during difficult times, and it can be a delicate balance responding to pricing pressures while maintaining consumer trust. Retailers who are prepared and react better than others with their pricing strategy will succeed, gaining new loyal customers and coming out stronger than ever before.
Matthew Pavich is managing director, global strategic consulting at Revionics, an Aptos Company.