No, we will not start by stating an obvious fact like price optimization for retail can increase a company’s margins by 2-7% in 12 months or help you yield an ROI between 200-300%, But with a simple experience.
Did you ever switch between two apps to get the best price for a t-shirt?
Congratulations you already know the key factor for purchase in this omnichannel business era – A price tag.
Now taking this small decision factor of ours at scale as an organization can help us enhance revenue and retain customers in the long run.
How?
This is exactly where retail pricing analytics comes into the picture. But before we see it in action, let’s first understand the components backing a strong retail pricing analytics solution.
What defines a data-driven retail pricing approach?
As a pricing strategist, it’s your responsibility to optimize pricing strategies across different product lines and store locations. But with Increased competition and fluctuating customer trends, you need a data-driven approach.
Here’s where retail pricing analytics comes in. This approach utilizes three key analyses to inform pricing decisions:
- Price elasticity and Margin-cost analysis: Knowing your price elasticity can help you set a price that balances customer sensitivity with maximizing your profit margin from the margin-cost analysis (This is your ideal retail price that sits between these two points).
With this as the part of retail pricing approach helps in determining a price high enough to achieve your profit goals but not so high that it scares away customers (based on the price elasticity). This maximizes your profit potential while remaining competitive in the market.
- Effective Competitor analysis: By using pricing analytics for tracking competitor prices over time, you can identify patterns and trends. This helps you to answer recurring questions like:
Are they frequently discounting specific items? Do they adjust prices based on seasonal fluctuations?
Further by monitoring competitor prices efficiently, you can fulfill your price-matching promises without sacrificing profitability.
Based on this you can discover gaps in the market where competitors might be under-serving a price-sensitive segment.
- Customer segmentation analysis for boosting CLV: Customer segmentation brings retail pricing to life by allowing a transition from a generic ‘one-size-fits-all’ method to a personalized pricing strategy.
By dividing customers according to their demographics, purchasing habits, and price receptivity, one can understand what various groups prioritize. This enables you to establish pricing and promotions that align with what customers are willing to pay, increasing profit margins without alienating important clients.
Retail pricing analytics in action!
However, achieving optimal pricing isn’t a one-time task. A survey by Gartner found that 60% of pricing leaders plan to increase their use of pricing analytics.
And why not?
Combine pricing with retail analytics, and you can create a mechanism that functions as both a catalyst and a metrics engine for managing profitability. So, let’s look into how pricing strategies in action help executives get a clearer understanding of both the internal and external factors affecting profitability at a granular level.
- Dynamic Pricing
Getting insights from pricing analytics, through prize optimization and real-time adjustments dynamic pricing puts those insights into action. With some systems automatically adjusting prices based on pre-set rules, a price might increase during peak shopping hours.
A classic example of which heading to the cinema on a Friday or Saturday night. Expect to pay a premium. Movie theatres often adjust ticket prices based on the day of the week and the popularity of the film.
- Trade Promotion Optimization
There’s one thing that all retailers agree is that many promotions are ineffective. This has gone on for decades and spending on promotions has increased over time. But having data-driven trade promotion optimization (TPO) is just the thing that the retailers need.
15-20% increase in promotion effectiveness by easily sharing data to co-create promotions that address customer needs is exactly how companies like Nestle and Coca-Cola effectively navigate the complexities of a global market and ensure their products remain attractive to consumers while maximizing their profits. So the next time you drink your favourite soft drink, thank trade promotion optimization for it.
- Revenue growth management
While understanding the cross-dimensional complexities of effective marketing and sales initiatives is crucial, the ultimate goal is to translate these sales and marketing efforts into profitability. Especially at a time when consumers have a high tendency to switch and competition is fierce, the margins can be susceptible.
Developing new products, adapting marketing strategies, and entering new markets all require investment. This leads to a cycle of cost-cutting and budget reallocation
While its competitors were scrambling to find the pricing sweet spot, Walmart cracked the code thanks to its retail pricing strategy. Establishing a retail pricing analytics approach with RGM capabilities disrupts this cycle and fosters a more enduring perspective on avenues for growth that align with the needs of consumers and retailers.
Future of growth and Sales X Retail pricing strategy
However, achieving optimal pricing isn’t a one-time task; Companies need to adapt to changing dynamics and avoid discount fatigue for long-term profitability.
Therefore, Companies looking to strengthen their pricing programs with AI and analytics will have some homework to do.
There are many excellent solutions in the market, but not all are suitable for all organizations. Firms may find they also lack internal expertise and access to data sources.
Hence, they may need to partner with specialized providers like Polestar solutions who understand the nuances of the industry, have sound analytical domain expertise, and have the tools to provide quick and accurate results to gain the upper hand to enhance their position in any market – USA or abroad, ultimately leading to stronger business growth and sales performance.
