Hello, I’m Jim Sills, Co-founder of ClearDemand. We’re a pricing software company committed to helping retailers compete more effectively. This is the second in a series of short videos for retailers.
Today, I’d like to share with you some thoughts around dynamic competitive pricing and how to avoid pit-falls in price matching.
In the previous video we discussed how retail has changed. Shoppers are no longer captive in Brick and Mortar stores but rather come equipped with smartphones and have easy access to competitor products and prices.
In an effort to compete more effectively, some retailers have announced across the board price matching.
However this is a race to the bottom. Retailers need a sustainable strategy for competing effectively in this new omni-channel environment, one that avoids the pitfalls of indiscriminate price matching.
Let’s consider an example. Suppose we sell a 75 fluid oz package of Tide, and we match the competition on a price per unit basis as shown here. We also carry a 150 fl oz package of Tide and we match the competition on that too. So far so good.
However, there are 26 different sizes and types of Tide. The competition sells a 100 fl oz package that we don’t carry and they are priced more competitively on that package size. If we are competing on exact match, then we have a blind spot and the competition is exploiting this to our disadvantage.
Intuitively, we expect competitive pressure to increase with product similarity, assortment variety, and lower price. In this example, we sell a 15 oz better product at the price of $12.97.
Competitor 1 carries a 15 oz good, a 25 oz better, and a 35 oz best. Competitor 2 carries more products, more similar products, and at lower prices. There is more pressure from competitor 2 than competitor 1.
Innovations in demand modeling now use historical competitor prices to measure shopper sensitivity to competitor price gap.
Let me illustrate, here we show price, units, and competitive pressure over time. As we described in our last video, when price decreases, we can expect unit sales to increase.
But now for the first time in our industry, we can predict how unit sales will decrease when competitive pressure increases. In summary, retailers can compete more effectively by considering competitive pressure rather than the price of an individual competitive item.
Thank you for joining us. Please continue to follow us as we explore innovations that help you compete more effectively. Send questions to my email address below and don’t forget to register for our webinars, white papers, and news alerts.