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Aligning Pricing Strategy with Business Objective

Do you know if your pricing strategy fits with your business model? Retail Systems Research recently conducted a survey and found many retailers sending consumers mixed signals with their pricing strategies.

In the report released earlier this month, RSR found that although retailers know the importance of smart pricing, they admittedly do not know how to implement these price changes to effectively complement their overall business strategy. In fact, the report found that misguided pricing strategies have the possibility of creating the opposite of the intended effect. While pricing intelligence is a relatively new tool for online retailers, confidently implementing a pricing strategy in line with your business’ goals can separate you from the pack. Here are a few things to remember:

1. Swimming Downstream is Easy, Getting Back Upstream is the Problem

In the RSR report, 52% of US retailers admitted that they found competitors prices ‘very valuable’ in determining pricing strategy, a higher percentage than ‘customer purchase history’ or even ‘demographics’. What does this mean? That retailers still believe that they can win a race to the bottom.

Amazon (along with their years and years of posting losses) have already proven they will win. Every time. In addition, promotions for the sake of promotions is a strategy that does not focus on listening to the customer. Remember what your mother warned you about caving into under peer pressure in high school? Those who worry too much about how they look in relation to their friends forget to pursue what makes them special in their own right.

2. Forecast and Measure

Pricing solutions can be daunting at first with all the potential rules at your disposal. Whether you want to try and increase your conversion or maximize your margins though, you need to be forecasting the decisions you wish to make and measuring your outcomes. Yet more than half of all retailers collect or analyze no data on their price changes. If you aren’t forecasting and measuring, how can you know what strategies are working? You wouldn’t offer a new SKU without analyzing sales expectations or collecting the sales data. A/B testing should be the foundation of your pricing strategies, but these tests are only helpful if you obtain the necessary analytics to know which option was more successful.

3. Use Science/Economic Models

Dynamic pricing is growing in popularity in online retailing, with 61% of retailers using a form of regular price optimization, as opposed to 36% from 2013. With a rate of adoption that high, those who avoid the scientific and economic models available will consistently be mispricing any product. The more commodity-like the good, the more costly the mispricing. In addition, good pricing solutions include behavioral factors that can determine when you’re primed to offer a customer a certain product on discount. Providing well-timed promotions will help you sell otherwise immovable inventory and win the hearts of tightwads.

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4. Consolidate Your Vision

Any pricing changes you make that do not align with with your business goals are doomed to fail. In the RSR report, 46% of retailers stated that maximizing gross margin was a top priority for their pricing strategy, yet the other reasons that rounded out the top three are increasing market share and driving demand. These are all great goals, but they cannot all be attained through a singular pricing strategy. Want to penetrate a market? Then focusing on your competitors and providing a low price is the best way to drive demand. But if you want to maximize your margin, you will need a more sophisticated strategy that could include competitors’ prices, internal sales/conversion data, or even time of day. Only then will you be able to receive the optimal margin.

5. Precision Marketing & Pricing

Long gone are the days where personal customization is reserved for the royal family with their monogrammed towels and stationary. Now though, connecting with your customers on a personal level is necessary for retailers wishing to turn a customer loyal, or win one’s heart in the first place. While up to our necks in the price transparency era, only 9% of the successful retailers align their online and in-store prices. Why different prices?

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Simply, because savvy retailers know that different customers access their catalog through different channels. And different customers are willing to pay different prices. Additionally, general strategies should change across channels as well. Selling on Amazon will likely necessitate competitive pricing while selling on a website provides the opportunity to stress differentiation and extract a premium. Every customer and channel is different, so retailers’ pricing and marketing should reflect this.

Retailers need always to be mindful of how the prices reflect the company. Pricing incongruent with company goals creates blurred lines from the customer’s perspective, and customers hate these blurred lines.

What other opportunities exist to convey a consistent business objective? Brainstorm away in the comments below.

Contributing WiseWorder: Jack Symington

 

Arie Shpanya

Arie is the former COO, Executive Chairman, and Co-Founder of Wiser, a dynamic pricing and merchandising engine for online retailers and brands. He has extensive experience in business development with a focus on eCommerce (eBay and Amazon), and is a guest blogger on Econsultancy, VentureBeat, and more.

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