How You Can Win a Relentless Price War
Pricing is always a decisive factor with shoppers and a top priority for retailers. Shoppers want the lowest possible price and retailers want the healthiest margin. Smart retailers have been able to successfully balance this yin-yang relationship, but the dynamic has changed. Power has shifted to the shopper thanks to the emergence of competitive pricing engines and now retailers find themselves in the middle of a relentless price war. Here's what you need to know to win.
Retailers hate price wars and for good reason. They are races to the bottom where even the winner is a big loser. However, smart retailers are sitting out the current race to the bottom. In fact, they are strategically raising prices based on information provided by analytic engines that measure competitive pressure (or lack thereof) in real time on specific SKUs across the entire product line.
To get to this level of precise pricing control you need the feed. In other words, you need to know what your competitors are doing and you need it in an easy-to-consume data feed. You also need to know how your prices affect shopper decisions and how quickly your response time should be. You also need to know whether your overall pricing strategy will enable you to achieve targeted sales and margin goals. And, by the way, you need all of this capability to operate in near-real time.
RIS News recently examined these issues in the Custom Research study "New World of Pricing Optimization." Many of the findings are eye opening, because most retailers are just catching up to the new pricing reality that has been pioneered by fast-moving trendsetters like Amazon, Best Buy and Walmart. Here's what we found.
- Two of the biggest findings in the study are about the sales and profit potential for pricing optimization. Retailers estimate they could increase sales by 6.7% and profits by 4.6%. These are huge numbers in an industry where moving the needle by a percentage point or two translates into millions of dollars.
- Today, 21.1% of retailers say they currently use digital commerce pricing optimization software. In the coming year, we see that nearly a fifth (18.4%) more plan to deploy it.
- If every retailer who responded to the survey had dynamic pricing software deployed today and all pre-set conditions were met, 28.2% say they would change prices in real time without limitation. Roughly half (51.3%) would change prices faster than every four hours.
- Today, 38.5% of retailers change online prices with some level of frequency for less than 100 products. This number jumps way up if all retailers were equipped with advanced pricing optimization tools – 28.2% would change prices frequently on a minimum of 1,000 products and 23.1% would do it on more than 5,000 products. Of this latter group, a sizable12.8% would change prices frequently on more than 10,000 products.
- The vast majority of retailers (75.7%) create price matching rules for five or fewer competitors. Of the 24.3% who create price matching rules for more than five competitors, all include Amazon on their list.
In this fast-paced world of online pricing optimization, you need to fight fire with fire. You need a real-time competitive pricing data feed, advanced algorithms that use statistical models to weigh prices, and rules-based software that uses game theory to prescribe prices dynamically at the micro-market level. Welcome to the new world of pricing optimization.