Four ways to rebuild your retail pricing foundation in 2021
The beginning of the year is always a good time to realign business objectives and consider the company’s overall goals.
This is particularly true after a highly disrupted 2020, when retailers had to react to new pandemic trends that were often difficult to predict. During the upcoming year, retailers can invest in building a resilient foundation for the future – and much of that foundation lies on intelligent pricing and promotions.
Pricing teams have an opportunity to reevaluate their KPIs from last year and focus on impactful strategies that will create a strong pricing foundation. Whether it be margins, price index or traffic, organizations can benefit from setting up their strategies now, focusing on four key initiatives to set themselves up for pricing success in 2021.
1. Take advantage of new consumer behaviors
Shoppers’ behaviors evolved over the last year, and retailers must be able to adapt and meet these new post-pandemic expectations. For example, offerings once viewed as niche – such as delivery-only grocery stores or home gym equipment – will continue to expand in 2021.
As brand loyalty shifts and new items become drivers for price perception, successful retailers are the ones who have already identified these changes in consumer behavior and provide competitive prices in the space. Pricing teams can only do this by having superior analytics to identify new patterns, cater to their customers’ evolving needs, and capitalize on the opportunity to attract new shoppers.
2. Re-evaluate competitive strategy
With the change in consumer behavior, the market shifted dynamically in 2020 as more and more brands entered the already competitive landscape to meet shoppers’ needs and take a share of customer loyalty. In fact, a survey by Bazaarvoice shows that 88% of consumers globally that purchased from new brands during quarantine plan to buy from those brands again in the future.
The best retailers are figuring out who their new threats are, building strategies to elevate their value proposition in a market that looks completely different than a year ago. For example, retailers may now consider online players, local or regional shops, and private label brands who would not have been considered top competitors before COVID-19. Businesses should revisit their competitive pricing architecture and validate that their pricing rules and relationships still make sense in 2021.
3. Establish omnichannel pricing capabilities
As the demand for services like curbside pickup or buy online, pick up in store (BOPIS) grows, it’s more important than ever before for retailers to unify their omnichannel strategies. Disconnected prices and promotions can create a disjointed shopping experience. Instead, retailers must seek to understand where consumers find value in each channel and figure out what shoppers expect from online versus in-store to help drive pricing strategies that resonate.
To accomplish this, retailers should check that all channels offer science-informed dynamic pricing, looking at shifts in demand and cost structures at the category level to align pricing objectives. Retailers can also invest in new technologies, build new capabilities, and modernize their infrastructures to create consistent and purposeful tools that can expand across every channel.
4. Maximize effectiveness of promotions
Last year, retailers ran inefficient promotions that put them at risk once the pandemic hit. One of the reasons why traditional promotions weren’t working was because they were running the same sub-optimal promotions they ran the previous year.
Retailers have learned that rinse and repeat is no longer a valid approach for promotions management and vendor trade funds. Analytical evaluation of promotions can streamline efficiency and generate value, which in turn maximizes promotional outcomes as well as relationships with vendors. Retailers must invest in the AI capabilities and data to surgically improve the impacts of their promotions. With the right mindset, retailers can shift their promotional strategies to achieve results.
Prioritizing pricing and promotion investments is critical to laying the foundation for a successful year. This is the time to start making the right pricing adjustments to come out stronger than before. Retailers who proactively re-evaluate their pricing strategies’ effectiveness will be positioned to not only survive, but also succeed now and in the future. Following these four steps, retailers can execute a pricing plan that will drive value for consumers and enhance the bottom line.
Matthew Pavich is managing director, global strategic consulting of Revionics, an Aptos company.