SIX STEPS FOR GETTING YOUR ONLINE PRICING DECISIONS RIGHT

Transcription

1 5 BEST PRICE

2 The number one reason that consumers globally choose to shop online is to save money, while searching for the best price is one of their top online shopping activities. This trend has created enormous challenges for retailers; getting their online price position right has become an imperative in their battle for shoppers. As a retailer, if you are to achieve the maximum revenue without losing any margin, your products must always be available at the right price. That means you need to be able to react quickly to competitors price changes. If your products are priced too high, your sales will inevitably drop. On the other hand, if your products are priced too low, your sales may well increase but your profitability will suffer. Customer perceptions of your products and brand may also be negatively impacted if you get your price position wrong. An informed online pricing strategy can help you to find the right balance of pricing. Managing this successfully relies on getting the following six core activities right: 1. against the right competitor set 2. Benchmark your product prices against the market 3. Ensure you are basing your pricing decisions on high-quality, trusted data 51% of respondents shop online to save money 66% search for the best price while shopping online for a mobile phone Source: GfK FutureBuy 2017; online survey with consumers 18+ in 35 countries across key categories 4. Determine the frequency with which you receive your pricing intelligence 5. Identify those price changes in the market that really matter 6. Make pricing decisions that drive your bottom line

3 1. against the right competitor set As a retailer, you sell large numbers of products. While it may be routine to track all products to meet your pricing objectives, this is not necessarily essential. What is most important is determining which products are the right ones to track. To do this, you need to answer a number of questions: Which categories are the most price sensitive? Which products are most important when it comes to driving customer perception? How many price changes can the internal team execute and manage? The key point here is that it is better to focus your resources on tracking the prices of those products that can have the greatest impact on the performance of your business. Besides deciding which products to monitor, it is also very important that you understand which of your competitors you should track in each category. You will most likely be looking at the following groups: direct competitors specialists that only compete in some of your categories disruptors that might not be considered major competitors but may have an impact on pricing, promotions and competitor activity in your market For example, a smaller retailer with less impact on the entire market may lower its price position in one category (e.g. TVs) to attract consumer attention and cross-sell products with higher margins in a related category (e.g. audio visual and accessory products). Exploring your various competitors in each category will enable the buyers and merchandisers within your commercial teams to determine which of their pricing activities matter most to your business.

4 2. Benchmark your product prices against the market Price activity can occur at a product level; however, the ability to track the price of your full product range across categories in the form of a pricing index is significant. A pricing index allows you to ensure your product range compares favorably to your key competitors and the rest of the market. Furthermore, it provides a pricing benchmark through which you can compare your price position against other retailers for selected products. The ability to compare prices at both a category and product level allows you to identify not only price shifts, but the influence these shifts have on your pricing position. You can monitor your price position with a price index report like the one shown here: A price index report such as this can help you to manage your pricing strategy and ensure you are on track to meet your pricing objectives. For example, your target price position might be to be within 2% of that of a key competitor s price. Achieving this position is not only critical for differentiation at an individual product level, but will also enable you to maintain a balance of prices across your product range. Index calculation (competitor own price) Retailer 1 Retailer 2 Retailer 4 Retailer 5 Retailer 6 Retailer 7 Retailer 8 Retailer 9 Index (%) Retailer 3

5 3. Ensure you are basing your pricing decisions on high-quality, trusted data Having full coverage of your chosen product set is critical. If you re tracking 5,000 products across 15 retailers, the potential data ecosystem will be large. Ensuring that the prices of your specified products are benchmarked against all relevant competitors is critical, but not easy. Identifying those competitor products in the first place can be a challenge, as product descriptions and attributes can vary significantly for the same product across different retailers. This matching process is the first step in making sure that your price index report is correct. It is key to the success of any pricing strategy that the matching process includes data on your complete competitor set. With data you can trust, you will receive the maximum benefit from your price tracking service. You need to be able to trust the quality of the data included in your price index report if you are to make the right pricing decisions. It does not matter how many features, reports or alerts a price tracking service offers. If you cannot trust your data, then it is of limited value. With data you can trust, you will receive the maximum benefit from your price tracking service. Pricing intelligence that directs actions and enables you to negotiate with your suppliers will drive immediate value for your business. As previously mentioned, a fall in pricing may help to increase sales, but it also means a loss of margin. If you are to pick the optimum lower price point to ensure enough of an increase in sales to offset your reduced margin, you must have pricing data on your complete competitor set. If you don t, and you consequently don t lower your price enough, your sales may fail to increase while, at the same time, your profitability will be less for every item sold.

6 4. Determine the frequency with which you receive your pricing intelligence Another key element to consider as part of your online pricing strategy management is the frequency with which you need to receive online price change notifications. This will be determined in part by the speed at which online prices change in a category. More importantly, however, it will be dictated by when you need to receive online pricing intelligence. If, for example, you can only revise your prices once every 24 hours, it makes sense for you to receive your price notifications daily in time for your commercial teams to make any necessary price adjustments the same day. If price adjustments can be made multiple times a day, then more frequent pricing intelligence updates will ensure you are always making the best pricing decisions, and therefore driving revenue growth.

7 5. Identify those price changes in the market that really matter With potentially huge volumes of online pricing data to manage, there is a risk that your teams will spend too much time working through this, or that they will not have enough time to conduct thorough analysis. This can lead to opportunities being lost. New alerts To maximize the value of the market data collected, you need to notify the commercial teams of the price changes that matter. Your ability to do this successfully, as previously mentioned, relies on you collecting the right data in the first place. However, it is also dependent on the parameters you set and use to trigger alerts to price changes that need attention. Such parameters might include when a competitive product drops below a particular price position, when there s a new promotion in the market, or when there is limited availability of a product. The list goes on, but these alerts, set up by specific product and competitor sets, can deliver very focused action lists. PRICE CHANGES 98 PRICE DECREASES 37 Overall, alerts functionality ensures you are concentrated on key pricing information, maximizing efficiency while minimizing time spent searching for relevant data STOCK CHANGES CHEAPEST PRICE CHANGES

8 6. Make pricing decisions that drive your bottom line All of this activity will assist you with making the pricing decisions that can increase your revenue without any loss of margin. It can tell you, for example, whether you should follow suit when one of your competitors changes a price. The quality of your pricing data, frequency with which you receive this intelligence and your internal pricing process are all factors in helping you to make such choices. However, to make the best pricing decisions, it is also important that you receive enough detail on competitors pricing activities. You need answers to questions such as: When did your competitor introduce the price change? If it happened this morning, then you might not have a problem. If it happened three days ago, it s possible you ve lost margin. Is the product in stock on your competitor s site? You may be able to raise the price of your product if it isn t. How have your competitors reacted to a price change in the past? Will they follow suit if a key retailer drops the price of a specific product? What usually happens in these instances? This historical perspective can help you to make more informed decisions and identify patterns across key promotional times, such as Black Friday. What online product promotions are competitors offering? Are they competitive with yours? What does this mean for your stock and prices? At what point has a price change impacted sales in the past? There might be a category or product that over time hasn t displayed much price elasticity. Knowing this, you don t necessarily need to react immediately to any price change by a competitor. Should you follow suit when one of your competitors changes a price? A C B ADJUST NOW

9 Conclusion Connected Consumers ability to check prices whenever and wherever using different devices has created enormous challenges that you need to overcome if you are to effectively manage your pricing. To remain competitive, you must track your online price position against that of your competitors to identify the price changes that matter. It is only with pricing data that you can trust that you can make the pricing decisions that will drive your bottom line. If you don t fine-tune your price position and strategy with these elements in mind, you risk missing out on market opportunities and negatively impacting your business. In contrast, the positive impact on your revenue and profit of making the right pricing decisions can far outweigh your investment in the processes and services that support these decisions. The winners in the new retail battleground will be those that utilize pricing intelligence to get their online price position right. To find out more about how we can help you to optimize your online pricing, contact Adrian Hobbs at adrian.hobbs@gfk.com and competitors Comparing prices against market Getting the best data quality Get updates when needed Focus on changes that matter Make the best pricing decisions

10 Shop 5 GfK is the trusted source of relevant market and consumer information that enables its clients to make smarter decisions. More than 13,000 market research experts combine their passion with GfK s long-standing data science experience. This allows GfK to deliver vital global insights matched with local market intelligence from more than 100 countries. By using innovative technologies and data sciences, GfK turns big data into smart data, enabling its clients to improve their competitive edge and enrich consumers experiences and choices. GfK. Growth from Knowledge