How Grocers Can Marry Art + Science to Improve Lifecycle Pricing

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How Grocers Can Marry Art + Science to Improve Lifecycle Pricing

By Channie Mize - 08/04/2016

Retail prices are easier to find than ever for customers – and more complex to deliver than ever for 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 catalogs to bricks & mortar, disjointed promotional and markdown decisions, and shoppers whose preferences and behaviors 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 supermarket retailers are also drilling down to learn much more about their most profitable customer segments, for example, with pricing, promotions and targeted marketing to appeal specifically to them. The analytics can then calculate the overall financial impact of these activities across the pricing spectrum: regular, promotional and markdown.

How can grocers unite both art and science – including their analytics, people and processes – to improve lifecycle pricing?

Align Software with Human Decision Making

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 if the prices fit within the prescribed guardrail. 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. Further, the ability to focus only on those prices requiring further scrutiny enables pricers to more effectively leverage analytics to determine the right action to take.

In addition, having tools and analytics that are purpose fit for understanding a product’s lifecycle enables a more robust view of the right action to take across the pricing spectrum. For example, a new item in the store may be hot in the market with competitors aggressively driving price down. If a pricing manager has access to strong analytics, he or she may understand their customers will respond better to a higher EDLP price with hot promotions. Additionally, seasonal or limited-time products need to be managed effectively with robust clearance analytics to ensure the product can be cleared through as profitably as possible.

This kind of holistic approach, which can incorporate human judgement, can turn what may look like a pricing exception into a clear financial advantage over the full pricing lifecycle.

Change the Organization

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 centralized team manages markdowns. A more strategic, integrated approach using full lifecycle 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 been slower to impact grocery, but is starting to transform shopping behavior, retail pricing and the competitive landscape forever, and the chess game won’t get any simpler. Already center aisle consumable categories are broadly sold online, which is starting to cannibalize traditionally higher margin in-store grocery categories. Few retailers can beat online retailers in pricing, 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, grocers 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 supermarket retailers will improve lifecycle pricing to gain significant competitive, first-mover advantage along with meaningful revenue and profit growth.

 

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