Forever Friends: How the Pricing and Merchandising teams can join forces to generate beautiful profits
- Posted by Ryan Jensen
- On August 9, 2018
The demands placed on the merchandising team can be immense. From inventory management and promotions to space allocation and vendor negotiations, smart merchandisers quickly learn to leverage internal partners within their own organizations. At the end of the day it takes much internal collaboration to ensure that you have the right merchandise, in the right place, at the right time, in the right amounts, and at the right price. No where is this more true than with the pricing team and the value that they can add to the process.
Savvy pricing managers position themselves as valuable internal consultants to merchants. It makes sense for both parties as they often share KPI’s and many retail organizations are structured such that they encourage a cultivation of a mutually beneficial relationship between the two organizations.
Are you a member of a pricing team looking to drive more meaningful results with your merchandising partners? Based on our experience in dealing with both parties we’ve generated a list of six areas that can generate the best results.
- Pricing role or strategy by category- The pricing team can assist category managers in how to price certain categories based on their importance to overall strategy, target customers, vendor requirements.
- Good/Better/Best pricing approach- A good analyst will be able to communicate to the merchandising team the rationale behind things like Price Anchoring or Weber’s Law as well demonstrate the value behind a sound tiered pricing structure that can be optimized and tested.
- Product attribute pricing- There’s no shortage of available data. Smart retailers are capturing things like product attribute information that can be used in concert with sales history to determine a customer’s willingness to pay for certain features or benefits. You can uncover insights like how much more a customer would be willing to pay for an Energy Star branded light bulb and then forecast the increase in gross margin by pricing it more appropriately to real demand.
- KVI selection- These are the items that drive traffic, expand market baskets, and reinforce your value in the eyes of consumers. You can help the merchandising team better understand the implications of price changes or promotions to these items and make sure that all tactical changes are aligned to overall corporate strategy.
- Establishment of pricing rules- Rules can enable consistent and scaled growth or they can inhibit margin opportunity if they are too restrictive. You can work collaboratively on defining the right balance. Here is a link to a recent blog post outlines best practices on this subject.
- Competitive price benchmarks- A good pricing team can serve as the eyes of the retailer and ensure that the organization is constantly apprised of competitive pricing across all channels. This could come in the form of syndicated data from providers like Nielsen or IRI, competitive price shopping from vendors like RetailData, or online data pulled from web scraping services.
This list is by no means exhaustive but it is very illustrative of the profitable synergies created when there is real alignment between the pricing and merchandising functions. Best of luck in forging stronger ties with your friends in merchandising!