Report: Dynamic pricing leads to holiday success
Ottawa, Canada — Well-executed dynamic pricing strategies, such as those deployed by Amazon and Overstock, led to higher sales during the 2013 holiday season as opposed to all-season discounting and other strategies. In its “Retail’s 2013 Holiday Winners and Losers” report, pricing intelligence vendor 360pi rated retailers’ overall financial performance for the 2013 fourth quarter on a scale from +5 (above expectations/excellent) to -5 (below expectations/very poor) based on third-party financial analysts’ overall assessments.
These included factors such as year-over-year sales for the 2013 fourth quarter compared to the 2012 fourth quarter, actual earnings compared to expected earnings, and profitability. For retailers that have not announced 2013 fourth quarter results yet, financial analyst predictions were used.
Based on its analysis, 360pi determined the following pricing strategies were “winners”:
Dynamic Pricing Retailers
While most retailers change prices daily on 5% to 10% of their assortment, Amazon averages 15-20%. Amazon ramped it up even further over the holidays, conservatively making 3 million daily price changes through the month of November 2013, including changing prices on almost a full third of their sampled assortment on Black Friday alone. Both Amazon and Overstock delivered the best holiday results with their dynamic pricing execution, earning respective 3 and 2 scores from 360pi. Retailers that attempted to implement dynamic pricing but did so erratically (such as Sears) did not perform as well according to the majority of analysts, and that earned Sears a -3 score.
Black Friday Discounting
Retailers who discounted more deeply on Black Friday experienced better financial performance than retailers who maintained steady prices. Amazon (score: 3) and Overstock (score: 2) were heavy discounters on Black Friday and also received high scores from 360pi. Amazon over-discounted far more than any other retailer, which could have negatively impacted its profitability; however, the online giant still fared well overall. Wal-Mart actually raised prices for the sampled assortment on Black Friday, and this could have been a factor in the retailer’s decreased financial performance. Walmart earned a -2.5 score from 360pi.
Post-Cyber Monday Discounting
Retailers who kept discounts in place, such as Overstock (score: 2), Home Depot (score: 1), Rakuten.com (score: 1) and Costco (score: 0) generally performed better than those who did not, such as Office Depot (score: -3), Toys “R” Us (score: -2), Sears (score: -3), and Hhgregg (score: -4).
The firm also also identified some “losing” holiday pricing strategies:
Pre-Black Friday Discounting
Some retailers, such as Target (score: -2), Office Depot (score: -3), Sears (score: -3) and Hhgregg (score: -4), began discounting the week before Black Friday; surprisingly, they performed worse than the retailers who did not employ pre-Black Friday discounting.
These retailers embraced promotions and discounts from the outset of the holiday season to its close, likely hoping incremental revenues would offset profitability erosion. Hhgregg (score: -4) exhibited “all-season discounting” tactics throughout the season and reported an 11.6% decline in third-quarter holiday sales.
BOGOs (Buy One, Get One)
Toys “R” Us (score: -2) most aggressively deployed BOGO strategies in selected all-important holiday categories, including video games, and also had higher base prices. Although BOGO pricing is a well-established strategy in retail, it is not as market-sensitive as dynamic pricing, and Toys “R” Us’ financial performance results indicate this strategy was not particularly successful.
“This average glosses over who were the retail leaders and laggards this holiday season,” said Alexander Rink, CEO, 360pi. “Faced with a very competitive landscape, fickle shoppers, and an abbreviated shopping season, which was further complicated by bad weather across large parts of the country, retailers were more challenged than ever to have the right price at the right time to convert the almighty shopper.”
No comments found