Retailers feel caught between a rock and a hard place. They know that competition is fierce and that they must lower prices to retain and attract shoppers. At the same time they face pressure from shareholders to raise prices to deliver stronger margins. History has shown that retailers who indiscriminately raise or lower price risk going bankrupt. Successful retailers are more surgical with price moves and invest in lower prices where those investments provide the best return on price image.
Price image measures the overall perception that shoppers have of your pricing. Shopper price perception is formed by many factors other than price alone.
What impacts price image?
Some of the factors that impact price image are listed below.
- Higher unit movers have a greater impact than lower unit movers
- Higher purchase frequency has a greater impact than lower purchase frequency
- Larger basket penetration
- Driver items have a higher impact than drag items
- Higher online activity from search, page views, click through, add to cart, and conversion
- More competitive pressure or more substitute pressure from own assortment
- Items featured on end caps, displays, and signs
- Item price relative to reference price derived from competitor prices, market prices, and historical price
- Retail format and category strategy
What can you do to improve price image?
Retail science can identify which items have the largest influence on price image. It starts by analyzing historical sales, online data, and product attributes to identify the products where shopper are more sensitive to the price. Next, price testing is applied to verify results where confidence is low.
Retailers can maximize their investment in price image by-
- Identifying your price sensitive items. Utilize demand science to identify price sensitivity (elasticity) for each product, store, and customer segment.
- Identifying Key Value Items (KVI). These items are generally the most price sensitive and highest moving items in your assortment. Utilize machine learning to cluster the KVI list into Tier 1, 2, 3, etc. for each customer segment.
- Using price optimization. Establish your KVI strategy (based on profit and revenue opportunity and business rules for competitive position, margin, line structure, etc.) and use price optimization to achieve your strategy for each KVI tier and for each customer segment.
- Leveraging private label items. Leverage Retail Demand Science to analyze product attribute premiums to identify gaps in your private label assortment. Introduce products that provide a higher margin at low prices.
- Getting credit for your low prices. Use signage, promotions, end caps, and displays to draw attention to those prices that lead the market.
Price image is one of the core challenges that we are asked to address by our customers. Contact us for a demo today to learn how you can improve price image while driving higher margins.