React, Respond, Reimagine: A 3-Step Approach to Pricing During COVID-19
An interesting trend during the pandemic, especially early on, has been an increased interest in gardening. People isolated at home found a new opportunity to test their green thumbs or expand upon their already ample skills. However, some have learned that, like retail, gardens can be unpredictable.
Imagine a gardener discovering that their once healthy crop is no longer thriving. The frustration will most likely lead to three steps:
1. React – The gardener needs to understand what happened. Which plants are impacted? If multiple, is it the same culprit? Is the issue weather, pests, watering, sunlight or fertilizer? In order to respond, a good gardener needs to understand why it happened and which plants are currently impacted.
2. Respond – A gardener then harnesses these facts and creates a plan to keep the current garden as productive as possible. Things have already been planted, and the goal is to get as much produce as possible. If the issue involved a pest, a small barrier or deterrent might be established to fend off unwanted guests. New irrigation or shading techniques might be considered. This phase meets the challenge head on, preventing it from ruining an entire season.
3. Reimagine – After mitigating the challenge, the gardener starts planning for the future, taking all of the learnings from the current growing season to build a better garden for the next. These are not minor adjustments, but rather fundamental shifts.
It could be relocating the garden altogether or building a raised garden bed. It could involve radical adjustments to what is being grown and the type of nutrients used. Any gardener who skips this step, simply planning to “respond” better the next time they need to “react,” has actually failed to seize the opportunity to improve.
The purpose of this illustration is to highlight how retailers can adjust their pricing strategy due to COVID to keep their “gardens” growing in the short term, and truly productive moving forward. Here are specifics retailers should consider when following these steps as it relates to pricing in the months ahead.
Step 1: React
This is all about understanding the new retail reality in a COVID-influenced, rapidly changing landscape. Most retailers are able to quickly pull sales and inventory trends to identify some of the more obvious facts, but the really successful retailers look deeper.
How has COVID changed product affinities and other basket analytics? Are yesterday’s KVIs (key value items) the same in the new retail reality? Which products are becoming more important and less important to promote?
Furthermore, how is the shift to increased e-commerce sales impacting different areas of the business? Have category pricing roles changed overnight? Has the competitive landscape changed? These are the deeper questions that need to be answered to be able to successfully respond to changing consumer behaviors and expectations.
Step 2: Respond
Once advanced analytics and data have been leveraged to understand emerging COVID realities, savvy retailers will need to respond to those realities to optimize productivity in the near future. Similar to the garden analogy, this phase is all about making the best adjustments within the constraints of current strategies, assortments and operational models.
During this phase, retailers need to manage excess (or minimal) stock and drive innovative promotions. Tightening vendor funds and new “top items” or COVID-induced trends need to be considered to drive better promotions. Most retailers can’t fundamentally change their business model or assortments in the next couple of months, so it is imperative that they leverage the best analytics and AI models possible.
Step 3: Reimagine
Enduring the pandemic and being as productive as possible in the coming months is on every retailer’s mind. Just about every pricing organization is dealing with the first two steps using different levels of sophistication. Tomorrow’s leaders, however, are also already re-imagining and building a better “garden” for the future.
COVID has provided retailers with a wake-up call, and in many ways has accelerated some trends that were already in existence (e-commerce, as an example). Reimagining is a fundamental shift in thinking and a redesign of all pricing, promotional and markdown practices to ensure a stronger tomorrow.
One example of this is a comprehensive shift in competitive practices inclusive of new zones, new competitors, new key items and new approaches to driving price perception. Another example is an overhaul of e-commerce capabilities to meet the pricing and promotional needs of tomorrow.
What worked in 2019 simply will not cut it in 2021. This final phase of the pricing-approach process requires a combination of true innovation. Whether reacting, responding or reimagining, the best retailers know that there is strength in partnerships, analytics and technologies to help them make better decisions and maximize opportunities for the future.
Matthew Pavich is the managing director of global strategic consulting for Revionics, an Aptos company, where he develops data-informed, industry-leading pricing strategies, processes, analytics and organizational fluency to help retailers meet the challenges of today’s increasingly dynamic and competitive landscape.