As Store-Within-a-Store Competition Heats Up, Retailers Turn to Zone Pricing Strategies

Retail partnership and expansion concept

Store-within-a-store (SWAS) partnerships, while not an entirely new concept, are once again popping up all over retail. Sephora at Kohl’s, Ulta Beauty at Target, and Petco at Lowe’s are just a few of the buzziest examples.  

As the quest for new customer acquisition becomes harder and costlier than ever, retailers are pulling out all the stops to create compelling reasons to drive foot traffic and encourage shoppers to seek out their brands.  

Ultimately, SWAS is about enhancing the customer experience and leveraging cross-affinities to draw in more shoppers and new profiles of shoppers.

As my colleague Nikki Baird, VP of strategy at Aptos, noted in RIS recently, “The SWAS partnership needs to benefit both parties or it won’t succeed long term. It should be with a brand strong enough to draw traffic on [its] own, but also a brand that makes sense to the retailer’s existing shoppers.”

[Read more: Pandora and Macy’s Expand Partnership Following Successful Soft Launch]

Certainly, choosing which brand to partner with and ensuring that brand has a synergistic customer profile are top considerations when developing a SWAS strategy. But once that partner is identified, it’s time to focus on other decisions that are fundamental to a successful and profitable SWAS, such as pricing.   

Does it make sense to continue with the same pricing approach at SWAS locations as in the rest of your chain? And what kind of pricing initiatives can drive the most business value? 

Here are some SWAS pricing considerations to keep in mind — and how zone pricing plays an important role. 

Zone Pricing – What It Is and Why It Matters 

By definition, zone pricing gives retailers the power to tailor price strategies by strategically defined clusters of stores rather than geographic boundaries.

Zone-specific pricing is achieved by tapping into rich data — be it from transactions, loyalty programs or other inputs — to better account for consumers’ preferences, segment habits. and price sensitivities.

Yet when a SWAS location is first launched and you attract customers you’ve never served before, you don’t have existing data to accurately predict their preferences and behaviors.

That is why it’s critical to leverage zone pricing, powered by scientific models, to make the most of the granular data coming in as quickly as possible and update your pricing frequently as the micro-trends are revealed. 

As more data becomes available, zone pricing can help you understand how the products offered in the partner store impact sales patterns for the products you’ve always carried (new affinity/halo relationships). You can even identify KVIs across the assortment to better tailor your promotional response and traffic-driving activities.

Using artificial intelligence to do this not only enables retailers to track the evolving demands of their SWAS customers, but also gives them the power to adjust as shopper behaviors evolve. 

Zone Pricing Can Help Your SWAS Stay Competitive 

A store-in-store format opens up your brand to a new pool of customers, and the same is also true in terms of competitors. 

With consumers’ ability to price compare, you need to create a zone pricing structure that takes competitors into account and helps you win the price perception battle in each market. 

Advanced pricing platforms allow retailers to dynamically execute their competitive strategies across numerous zones, including shop-in-shop formats, while maximizing profit potential on noncompetitive items.  

SWAS: More Than Just a Passing Fad 

As more stores focus on the experiential and embrace their role as brand hub and showroom, SWAS is set to be an enduring trend.  

Zone pricing is a relatively low-cost complementary initiative that has the potential to support SWAS by utilizing local trends in consumer demand to increase basket size, identify cross-sell opportunities and help you adapt quickly to the needs of new-to-you consumers. 

— Sneha Elango, Sr. Analyst, Retail Innovation at Revionics, an Aptos Company

Related Content