Marrying art and science to improve lifecyle pricing

Channie Mize, general manager for retail at Periscope, discusses how retailers can align their analytics, processes and organisations to boost pricing excellence and profitability.

Retail prices look simpler than ever to consumers – and more complex than ever to retailers. Every day, tens of millions of shoppers around the world go online to get reliable price comparisons in seconds. This phenomenon, the “Amazon effect,” will only get stronger.

Setting the first price in a retail setting is like making the first move in a three-dimensional chess game in a hailstorm: it’s only the beginning, conditions are shifting by the hour, and each move changes competitors’ responses. Multiply that complexity by thousands of SKUs per store, hundreds of stores, multiple channels from digital and catalogues to bricks & mortar, disjointed promotional and markdown decisions, and shoppers whose preferences and behaviours vary by region and demographics, and the game becomes far too complex for even the most experienced human to master.

With the right data, tools, and talent in place, enormously valuable insights can emerge. As they explore broad issues with advanced analytics, leading retailers are also drilling down to learn much more about their most profitable customer segments, for example, and pricing to appeal specifically to them. The analytics can calculate the overall financial impact of regular, promotional, and markdown pricing during the pre-season, in-season, and end of the season. 

Changing the processes

Professionals of all kinds, from pilots to architects, now rely on software to handle work previously performed manually. I believe software should enable a “manage by exception” approach to pricing. Advanced analytics solutions should include “guardrails,” wherein managers can set prices without approval. When a manager’s experience and judgment tell them they should set a price outside a guardrail, they need to seek approval only for that change.

With this consistent, straightforward approach, managers don’t need to rethink prices in every situation – and are less likely to overreact during what may appear to be a crisis. An unseasonably cool June, for example, may not mean that all swimwear must be marked down before early July. The solution may consider a wide range of factors that drive overall financial performance and determine that discounting immediately would be a costly mistake in certain regions since temperatures and demand there are likely to rise sharply in early August – just when competitors’ stocks are running low.

This kind of holistic approach, which can incorporate human judgement, can turn what may look like a mistake in regular pricing into a clear financial advantage over the full pricing life cycle. 

Change the organisation

To drive adoption, sustain new ways of working and maximize impact, most companies need to rethink organizational roles, structures, and collaboration. This is especially true in lifecycle pricing, where processes and decision ownership may reside in different departments or functions. Merchants may own promotions, for example, while a centralised team manages markdowns. A more strategic, integrated approach using full life cycle pricing versus the financial plans yields the most optimal results.

Most successful pricing teams include leaders from across functions who can share their broad perspectives on the business, from purchasing and marketing to distribution and competitive dynamics. To maintain momentum through the transformational journey to pricing excellence, senior management monitors and supports teams relentlessly – sometimes for years.

Transform and win

The “Amazon effect” has transformed shopping behaviour, retail pricing, and the competitive landscape forever, and the chess game won’t get any simpler. Few retailers can beat Amazon at its own game, so they need to find other competitive advantages with a holistic approach that uses an advanced, multi-factor model to improve granular decision making every day.

In an increasingly complex and competitive marketplace where margins are narrower, retailers need a combination of data quality assurance, analytical insights, cutting-edge software solutions, and new capabilities – along with consistent support from senior management.

By making these moves in the right sequence, the most successful retailers will improve lifecycle pricing to gain significant competitive, first-mover advantage along with meaningful revenue and profit growth.