Pressure on Retailers to Invest Smartly in Pricing Decisions

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A new report on pricing sponsored by Retail Systems Research (RSR) report, Pricing 2016: Life Becomes Unmanageable, reviews current pricing practices and challenges facing U.S. retailers and technology enablers.

With the intensity of price competition in retail, the understanding of price-sensitive items and setting an optimal price based on analytics is critical. The RSR report cites that only 35 per cent of retailers believe their company has a strategy in place to manage prices and promotions effectively across all channels.

“Never before has there been a greater need for analytics to inform a data-driven pricing strategy,” says Brian Ross, President of Precima. “Retailers are acknowledging this need for greater analytics, recognizing that to overcome the barriers of implementing effective pricing practices, they need to improve the analysis process for pricing and the integration of Software solutions that support pricing decisions and work flow.”

The RSR report also reveals that 50 per cent of US retailers believe increased price sensitivity of consumers is a business challenge, citing the possibility of negative customer reaction to changes in price strategy as the most significant organizational barrier to more effective pricing practices. Interestingly, retailers recognize consumer price sensitivity as the largest business challenge while also perceive it as an obstacle to moving forward. An effective way to address this conflicting concept is with the application of well-established analytical approaches.

“Retailers with customer data have a leg-up in the market and can leverage their competitive advantage through identifying key customers and then pinpointing what is important to them and where they care about price,” adds Ross. “Further, the next generation of pricing will need to incorporate competitive prices and data-defined competitive price indices to optimize price investments. The pay-off in doing this right is huge, namely incremental sales, profit and growth from loyal customers.”

Other highlights include:

  • 41 per cent of retailers cite not enough IT resources available as being a barrier to implementing effective pricing practices, followed closely by lack of price, competitor, and purchase data at 38 per cent
  • Personalized pricing is the goal for many retailers however 41 per cent of retailers feel that internal challenges indicate nothing drastic is likely to occur near-term until retailers implement the right approaches and processes
  • Less than half of retailers feel their company pricing strategies are building customer loyalty and only 23 per cent feel the pricing strategies are effective at driving bottom line results
  • Retailers are looking to replace early competitive price intelligence solutions and plan to invest in new capabilities around promotion optimization, markdown planning, and inventory management

“Back in 2012, we began expressing serious concerns about both strategies and tactics, but retailers seemed convinced they could win the race to the bottom on price or at least, by participating in the race, they could stay in the game. Fast forward to 2016, and retailers are now starting to feel the negative impacts of their past pricing decisions” said Paul Rosenblum, Partner at RSR. “Consumers may be sensitive about price, but no retailer, not even the lowest-priced retailer, can win on price forever.” 

About Retail System Research

Retail Systems Research LLC, a research company, provides insight into business and technology challenges facing the retail industry ecosystem, and thought leadership and advice on navigating these challenges for the retail industry. It offers benchmark reports that focus on the issues retailers face; retail winners reports to highlight how technology supports business growth and change in real life; advisory services by conducting internal review of marketing materials, visioning sessions, strategy days, and/or roadmap analysis, as well as by validating users’ plans with the company’s survey results; and Webinars and speeches at industry and user events. The company also provides custom research for technology vendors and practitioners in the retail eco-system; and Selling Technology Value to Retailers, a sales training program to understand the language of retail, business challenges and opportunities, how technology enables retailer success, what matters to retail line of business executives, and how to sell through the CIO.

About Precima

Precima is a global retail strategy and analytics company that provides tailored, data-driven solutions to drive sales, boost profitability, and build customer loyalty. Leveraging deep analytics expertise, Precima helps organizations improve their competitive position across all facets of planning and operations from pricing optimization, promotional planning, assortment optimization, targeted marketing, and supplier collaboration. In 2016, the company was named among the Top 10 Analytics Solution Providers by Retail CIO Outlook.