Four Pricing Dimensions that Reduce the Impact of Showrooming
By Laura Wheeler DeYonker, AbsolutData
Recent data from Harris Poll shows that weaknesses in retailers’ pricing, product information and customer service strategies lead 43% of customers to showroom — creating a situation where brick-and-mortar retailers incur all the sales costs and online retailers make the sale.
This makes it difficult for brick-and-mortar retailers to compete with online-only vendors because of high overhead costs. One way brick-and-mortar retailers can contend with showrooming and remain competitive (aside from product differentiation and enhanced in-store experiences) is to create unique pricing strategies with the help of Big Data. When done correctly, flexible pricing strategies allow retailers to offer more competitive pricing for consumers, while still enjoying high profit margins.
To determine which products will provide the highest returns on pricing strategy investment, retailers should ask the following four questions:
1. What: What items are most critical to focus on? Which items drive price perception (the customer’s judgment of the price) or have the highest impact on overall store sales when there are price changes? By targeting the right products, a small change in pricing can make a big difference to the retailer’s bottom line.
2. Who: Should prices be differentiated for various audiences? If loyal customers are rewarded with a lower price, will that still allow for a healthy profit margin?
3. Where: Should prices vary across regions or even channels? Do different regions have different price elasticity that a retailer can take advantage of? Should online prices be lower than in store to better compete with showrooming and online-only retailers?
4. When: When should you mark items down? When should you run promotions? How deep should markdowns and promotions be?
Owned Versus Competitive Data
Answers to these questions will vary depending on the retailer, specific product and time of year. When it comes to the use of Big Data to answer these questions for your business and create unique pricing strategies, retailers should focus on utilizing two specific types of data:
Owned data: Retailers should understand price elasticity of an item and its relationship to the total volume of products sold. When price decreases are made on key items, the volume changes may be more than just an increase in that single product. If the item is a traffic driver or has a lot of related sales, it may drive even greater total store increases. A clear understanding of price elasticity and key value items (the items that have the highest halo effect from price changes) will help retailers determine which items are most important to be sharp on pricing.
Competitive Data: Internal data is important but retailers can’t afford to operate in an information vacuum. Though harder to track, competitors’ prices are an important factor and need to be considered when designing a flexible pricing strategy. Consumers often compare prices across stores but it may not be possible for retailers to react to every competitor’s price change. The implementation of flexible pricing strategies on key value items allows stores to maintain a consistently competitive price and in turn, generate higher profits.
By analyzing both owned and competitive data, retailers can create a manageable process for pricing strategies that leverages internal factors and the realities of a competitive marketplace.
Holiday promotions are also a great opportunity for retailers to employ pricing strategies on key items. Understanding historical sales patterns and any changes in these items around a holiday period will help retailers successfully manage prices around important selling periods, such as Labor Day Weekend. Although holiday sales occur at similar times each year, competitors may promote differently. Different stores will also have different impacts from pricing strategies. Building price sensitivity models for key items ensures that a smart retailer can be proactive or reactive to competitor moves on those items each year.
It’s important to remember that a flexible pricing strategy is not for every product, and its effectiveness depends greatly on the industry, region and retailer. The foundation for any strong pricing model is a skilled analytical team with sophisticated resources. Whether in-house or through a third-party provider, analytics teams must utilize both owned and competitive data to organize and approach pricing strategies with the four key questions in mind.
Laura Wheeler DeYonker is VP of client services at AbsolutData.
Software Paradigms International acquires Shiloh
Software Paradigms International (SPI), a leading global, award-winning retail IT services and solutions provider, has acquired Shiloh Technologies, an Arkansas-based analytic software company for retailers and suppliers.
“This acquisition was strategic, allowing us to extend our product portfolio to provide POS analytics from retailers to their suppliers. It also provides Shiloh clients with the opportunity to leverage our global services and products — providing both companies with endless opportunities,” said Sid Mookerji, CEO and co-founder, SPI.
Known for its analytical retail software and customer support, Shiloh created a suite of tools that have been fine-tuning data and maximizing the ROI of its retail supplier clients for more than 19 years. The Shiloh team optimizes what it describes as the true value of data and retail performance through a locally installed platform or within a secure cloud environment.
“We are very excited about our possibilities with SPI,” said Britt Fogg, founder and president of Shiloh Technologies. “This brings together our world-class platform with a company recognized around the world for quality and retail service expertise.”
Fogg will remain president of Shiloh Technologies and promises that customers “will continue to see and talk to the same great people at Shiloh as we continue adding new members to our team to meet the ever growing demand for our products and services.”
Founded in 1994, SPI is a service provider that works with some of the largest retailers across the globe. Offerings include IT services, solutions and products such as TFO (SPI’s vendor collaboration product) and its recovery audit solution.
Kohl’s expands beauty offerings
Kohl’s is expanding its beauty offerings in cosmetics, skin care, bath and body, hair care, men’s skin care and fragrance, as competition within the beauty space continues heating up.
“This expansion of our beauty offerings in Kohl’s stores and online at Kohls.com takes our beauty department to a whole new level, bringing even more top national beauty brands to our customers,” stated Peggy Eskenasi, Kohl’s senior EVP. “The expanded selection establishes Kohl’s position as a destination for makeup, skin care and fragrance and delivers on our promise to provide quality products at a great price.”
There’s now an assortment of more than 20 new national beauty and fragrance brands in more than 250 Kohl’s stores nationwide and Kohls.com. The retailer has plans to expand the offerings to more stores in the future.
Shoppers at select Kohl’s locations will now find:
- Cosmetics: Lorac Cosmetics, Pür Minerals Cosmetics, Cargo Cosmetics, theBalm, Sugar Cosmetics, Jane Cosmetics, eos, Tweezerman, Real Techniques by Samantha Chapman;
- Skin care: H2O Plus, Borghese, Hydroxatone;
- Bath and body: H2O Plus, be Delectable from Cake Beauty;
- Men’s skin care: Zirh, action Solutions For Men.
The new brands join a portfolio of existing beauty and health brands available at Kohl’s including: American Beauty, Bremenn Clinical, Candie’s, Earth Therapeutics, Elle cosmetics, essie, Frederic Fekkai, Flirt!, Goodskin Labs, Grassroots Research Labs, Katy Perry Lashes by Eylure, Oscar Blandi Hair Care, Simple Pleasures, Simply Vera Vera Wang cosmetics and more.
Kohl’s also offers a selection of celebrity and designer fragrances for women including but not limited to: Adam Levine, Britney Spears, Burberry, Calvin Klein, Ed Hardy, Escada, Il Bacio, Jennifer Aniston, Justin Bieber and Lady Gaga.