- Posted by Ryan Jensen
- On March 15, 2018
When we talk precision in retail pricing, we think eggs. Lots of eggs.
The reason is simple. While we work with many types of retailers, we do a good share of work with grocers, and they have an egg problem. What seems to be a staple product, eggs are hard to crack in terms of pricing precision. It is an overwhelming, confusing and (dare we say) egg-hausting product to manage.
There are hundreds of egg suppliers (mostly privately owned farms) offering all types, grades, sizes and brands of eggs. Think grade A vs. AA, brown vs. white, organic, cage-free, 6-count, 1 dozen and 18-count, premium brands vs. private labels, and more.
Store-level pricing that is consistent and precise is rare. It brings a whole new meaning to “scrambled eggs” as retailers face pricing troubles and related inefficiencies. Whether you sell eggs, bacon, bathroom rugs or BBQ grills, here is how you can get more exact with your retail pricing.
Getting Exact with Pricing
Start with Simple, Sophisticated Rules. In the world of pricing science, rules matter. Historically, rules lacked sophistication and were difficult to manage with the prevailing technology. Today, rules matter even more and fortunately current technology permits a more powerful, flexible and sophisticated application of rules so necessary for our omnichannel world. Pricing precision requires rules that eliminate pricing violations and allow retailers to factor in numerous conditions, yet reduce the price management effort. Case in point: We recently helped one client reduce the number of rules in the egg category from 40 rules to 3, while achieving more consistent pricing. Building, changing and adapting rules is now sophisticated. And simple too.
Drive Price Consistency—And Profits. Why is a half-dozen eggs sometimes more expensive than a dozen? This lack of price consistency is not uncommon, largely because retail pricing teams don’t have the tools that reveal complete transparency. Maximizing consistency requires tools which analyze and manage line-structure using product attributes and in so doing simplify the price management task. For attributes, think grade A vs. AA, brown vs. white, organic, cage-free, 6-count, 1 dozen, premium brands, and so on. The result will be consistent logical pricing across product lines which prevents profit leakage. Case in point: One grocer priced using attributes within one product (yes, eggs) and increased profit by 4.9 percent.
Leverage Promotions—And Know Their Real Impact. Competition drives retailers to react—and discount products without definitive insights about the total impact on sales and margins. It is now possible to predictively forecast and model a promotion before “prime time” and offer data-driven proof that a promotion will achieve item and category-level goals. This is based on evolved pricing science that estimates promotional lift (units sold) at the item, category and store level, while taking into account affinity and cannibalization effects.
Ultimately, what it all boils down to is a re-examination—and execution—of retail pricing strategy. Simple yet sophisticated.
Pricing precision is possible, practical and paramount.