Price Points by Omnia Retail

Here you can read more about Omnichannel Retail, Direct-to-Consumer Strategies and Retail Trends. Learn about the Implementation of Dynamic Pricing and Pricing Strategies.

Unleashing Superpowers in Pricing: How Omnia's Visual Decision Tree Approach Revolutionises Dynamic Pricing

Omnia Retail’s origin and purpose In 2012, my co-founder and I had conversations with category managers from established online retailers in mature e-commerce categories, such as consumer electronics, and learned that...

Omnia Retail’s origin and purpose In 2012, my co-founder and I had conversations with category managers from established online retailers in mature e-commerce categories, such as consumer electronics, and learned that they were spending a lot of time each week manually looking up prices of their competitors on comparison shopping engines and were still running behind with repricing the products in their assortment. Propelled by e-commerce, product ranges were increasing in scope, and the heightened transparency of online pricing resulted in frequent price fluctuations. It became increasingly laborious and time-intensive to maintain competitive pricing as it required manual gathering of pricing data, calculation of optimal price points, and implementation of adjustments. This challenge led us to founding Omnia Retail. Over the years, we saw that as other retail categories matured online, they struggled with the same problem. Similarly, over the last few years, brands have become more serious about their direct-to-consumer (D2C) channels. Brands selling a product against the initial Recommended Selling Price (RSP) for the whole product life cycle leads to insult pricing and the need to change their prices, yet again, to align with the market. As a result, we now see that brands are starting to struggle with the same problem that retailers experienced over a decade ago. Simply being passionate about the challenge and using our prior retail and e-commerce knowledge, we applied our engineering expertise to solve this problem for retailers and brands. It was only later - when our company had grown to a size where everyone couldn’t fit on the same lunch table anymore - that we started reflecting on why we were so invested about solving this challenge. This very reflection led us to establishing Omnia’s purpose explicitly: “We give retailers, brands and their teams superpowers by unleashing the full potential of pricing through market data, insights and automation.” The most central concept here is the word “superpowers”. On a basic level, it refers to automating the tedious and time-intensive tasks that thousands of our users at retailers and brands had to manually do before: looking up prices of competitors, making calculations, and implementing changes. This already removes a lot of tedious work and frees up time to focus on more strategic and creative work. However, that is only one of the basic layers of “superpowers”. Another more exciting element is that we enable our users to do things that were never possible before, even if they would have all the time in the world to spend on pricing. In terms of insights, an example is providing dashboards that provide our users with a “God-view” of the market: fully understanding their own price positioning and understanding what their key competitors (or resellers) are doing. Regarding pricing automation, it’s about having nuanced and advanced strategies, understanding how they are set, impacting results in terms of price positioning and ultimately sales, and contribution margins. Elements of success for dynamic pricing software implementations Through the more than a decade of serving retailers and brands with pricing software, we have seen that certain elements lead to success and ensure the best returns on dynamic pricing implementations: Clearly defined pricing objectives: Begin by setting clear pricing objectives, emphasising the importance of starting with a clear end-goal in mind. Without clearly defined objectives one can have the greatest pricing platform in the world, but there is no guidance on how to use it, and how to measure success. It's essential to recognise that pricing objectives may vary across different parts and levels of the business and are likely to change in response to external factors. Therefore, the pricing platform must accommodate for these varying objectives to remain effective. Securing engagement and support: Securing the engagement and support of team members with direct involvement in pricing is crucial whether it’s as their core responsibility, such as dedicated pricing managers, or as part of their wider role like category managers and buyers. If these individuals struggle to implement the pricing strategies they aim for in the system, or if they cannot explain the prices suggested by the system, they may resist adopting the dynamic pricing software or, at the very least, lack the motivation to leverage the platform's potential fully. Continuous improvement: Rapid cycles of learning and enhancement drive ongoing improvement. This process is supported by ensuring all operations occur in the software's front-end. Any hardcoded rules established by a pricing software vendor in the back-end will hinder such a learning cycle. Moreover, maintaining transparency about the operational logic and performance metrics is essential. From these elements of success we have learned at Omnia, we derived two essential design principles for developing our price management platform: flexibility and transparency. Flexibility to remove barriers to adoption, improving results and ensuring control. Transparency to keep control while on auto-pilot, create buy-in from internal stakeholders and facilitate learning loops. As the ability to run detailed and complex pricing strategies has become mainstream, it has created the next level of challenges: complexity overload. Omnia 2.0 successfully cuts through the clutter with its revolutionary visual pricing logic with the Pricing Strategy Tree™. It gives complete pricing flexibility and control, coupled with transparency. Maintaining Flexibility & Transparency in an AI world Flexibility is a core principle in our design philosophy, enabling our clients' users to execute any desired pricing strategy across all parts of their business. We have seen a vast array of pricing strategies being used and broadly speaking, they are driven by differences in objectives at the highest level, the need to differentiate on objectives on lower levels, and differences in definitions. On the highest level, the main differentiation we see is between maximising revenues - with the constraint that a minimum contribution margin needs to be reached - and maximising contribution margin. Traditionally, we saw pure e-commerce players being primarily focused on the former, while more traditional omnichannel retailers were more focused on the latter. With the changing economy and higher interest rates, the importance of being profitable in the present, we now see pure e-commerce players also shifting more towards margin maximisation strategies. While on the highest level, a retailer or brand might have a margin maximisation strategy, virtually, they will always need to differentiate on the lower level as well. Take for example a racket sports retailer. Although overall profit maximisation might be the main objective, the retailer might be focused on penetration (maximisation of sales, given a minimum margin constraint) in a market where they recently launched, as well as that being the main objective to establish itself in a nascent category like padel rackets. Finally, we have learned that retailers and brands have differences of definitions and that their chosen software should support that, rather than enforcing a rigid rule or definition. Take the example of a stock-based strategy, where a company wants to automatically become more aggressive when stock coverage becomes too high or take the opportunity to steer toward margin when stock coverage becomes too low. The definitions of what’s too high and too low differ not only between companies, verticals and markets but also within a company and on different parts of its assortment. It’s crucial for pricing software to be able to provide that flexibility and give the power to the user, not only to ensure that the retailer or brand can reach its objectives but also to ensure that there are no barriers in the adoption of the pricing software. If business users - like category managers - are not able to implement the strategies, they will be inclined to resist the implementation, putting the dynamic pricing implementation project at risk. Pricing software must be able to support flexibility, but it’s even more crucial that everything is fully supported in the front-end of the user-interface (“the portal”). If there are rules or constraints hardcoded within the back-end, a common practice of some pricing software vendors in today's market, it leads to a lack of transparency and limits the pace of learning (testing with strategies). At Omnia, we’re proud to have this flexibility in our software, with not one line of customer-specific code while serving hundreds of retailers and brands since 2012. The examples previously mentioned demonstrate how the principle of flexibility is integrated into the pricing automation part of the Omnia platform. However, our commitment to flexibility extends throughout the entire platform. For instance, we don't confine our customers to predetermined calculation schedules. Instead, they have full autonomy to set the timing for pricing data collection and dynamic pricing calculations. Additionally, they have the capability to initiate calculation runs manually at any moment from the front-end, such as when assessing the impact of strategy modifications. These calculations are efficiently completed within minutes, even for extensive product assortments. Transparency to keep control while on auto-pilot, create buy-in from internal stakeholders and facilitate learning loops Automation has the potential to save time and improve results. However, when implemented poorly, automation may lead to a lack of control. From the early years, this has been our belief, and preventing our dynamic pricing software from becoming a black-box has been a core design principle. Even in our earlier years, the Omnia software had a “Show me why™” button that took the user by the hand in terms of how the software arrived at a particular price advice. Transparency in pricing software ensures control while being on auto-pilot. An element of this transparency is how your strategies will affect the prices for all products such as the number of products that received “price advice”: prices up, down, equal, price difference vs various benchmarks, and so on. One level deeper is the need for dynamic pricing users to understand the impact of every element of their pricing strategy. For example, one could have a very elaborate pricing strategy, but if anywhere in the strategy there would be a pricing rule “always adjust to the lowest price in the market”, there would be a high chance that the rule will set the prices for the majority of your assortment, and most likely down. Understanding how elements of your strategy impact the eventual prices set links to another significant benefit of transparency: improving results by enabling learning loops. When implementing dynamic pricing you can achieve surprisingly strong results by implementing a pricing strategy once, and then never touching the system again. However, we see that customers who use our software more continuously and are evaluating and testing new approaches achieve the best results. This is only achievable with a pricing tool that creates maximum transparency, facilitating those learning loops. The Pricing Strategy Tree™ as embodiment of flexibility and transparency Our previous pricing platform, Omnia 1.0, was very flexible. However, our most advanced enterprise customers using complex pricing strategies could end up with a long list of pricing strategies. Although relatively easy to build up incrementally, this could make it hard to grasp the strategies running and the logic behind them. In numerous instances, consultants specializing in pricing strategy assisted our customers by creating decision trees to map out and advise on their clients' strategies. This inspired us to use a decision tree as the main interface when building pricing strategies. Although we already had the idea of a Pricing Strategy Tree on our roadmap, acquiring German pricing strategy company Patagona GmbH at the end of 2021 gave us an unfair advantage. Patagona had developed a Pricing Decision Tree to build strategies in their Pricemonitor product. We evaluated this concept with our customers and based on their invaluable feedback, we developed the Pricing Strategy Tree as one of the core elements of our next-generation platform, Omnia 2.0. The new platform was launched in the Summer of 2023, with new product features being added monthly. Not only does the Pricing Strategy Tree lead to more transparency in terms of letting our users understand what’s running, we see that in practice it also makes it easier and simpler to create strategies. That is because it’s a visual drag-and-drop interface, but also because we embedded functionality; such as copy-and-pasting of selected branches within the tree (typically set-up for one market or format) and copy-and-pasting of entire trees across countries or formats. The latter is particularly relevant for our global customers to be able to roll out pricing strategies to additional markets with just a few clicks. To drive transparency even further, the Pricing Strategy Tree proved the ideal canvas for additional functionality: path tracking through the strategy tree, strategy branch statistics of the tree, and naming of tree branches. The path tracking is an evolution of the “Show Me Why™” in Omnia 1.0 called “Explain Price Recommendation” in the Omnia 2.0 platform and provides a full explanation of how the price advice of a particular product came about. This is a typical question for a business user as a category manager or buyer. The “Price Explanation” visually tracks the path through the tree to show the logic and how the price advice came about. “Strategy Branch Statistics” covers another use case, one that was never possible in our previous Omna 1.0 platform: It highlights how elements of the overall pricing strategy impact the eventual prices set. It does this by showing how many products are repriced by each branch in the tree, the average price difference and percentage difference of the price advice vs current price points, as well as the number of products priced up and down. One important benefit of this is that it gives our users insight into which branches are most dominant in setting the eventual prices. Remember the example of having an elaborate pricing strategy with a rule somewhere to “always adjust to the lowest price in the market” in the transparency section above. However, the value of Strategy Branch Statistics goes beyond that. It also provides users insights into the performance of a particular strategy branch, thereby facilitating the important learning loops discussed above. Another functionality we have added to the Pricing Strategy Tree™ canvas is the naming of branches of the tree. Although the tree already makes it easy to show the logic applied, the naming of branches makes it even more practical for users and co-workers to understand what happens in a particular branch by describing it in natural language, for example “Follow the lowest price point of key competitors when stock coverage is too high”. The naming of tree branches also lays the foundation for the steps we plan to take providing more insights in the performance or effectiveness of branches. “We have seen several pricing tools, but the pricing strategy tree plus “show me why” is a super unique selling point and best implementation of dynamic pricing we have seen so far.” International enterprise office supplies retailer. AI is a means, not an end: A case for blending rules, AI, and goal-based pricing We believe that AI as a powerful technology can greatly contribute to the “superpowers” in our purpose. Think about automated import mapping, creating reports based on natural language, surfacing conclusions from data and charts, and so forth. We are also convinced that AI will provide more and more value in the future core area of price setting. However, given the importance of transparency and flexibility, we firmly believe that the future of pricing setting won’t be AI only - on 100% of the products in 100% of the cases - but rather a combination of pricing rules and AI. In terms of intelligence in price setting, AI is a means not an end itself. The core need that we see at the retailers and brands across our customer base is more focused on moving away from setting granular business rules - with the aim of reaching specific objectives - to rather focus on setting the objectives themselves at a higher level and letting our Omnia pricing platform optimise for that. As a company focused on and committed to delivering value to our customers, we naturally plan for this need with more and more goal-based “nodes” (blocks) in the Omnia Pricing Strategy Tree™. Goal-based nodes can have a combination of complex AI running under the hood, for other goal-based nodes less complex statistical rules, depending on the need. The first example of such a goal-based node with AI under the hood is our Amazon Buy Box AI block whereby our user sets the Amazon Buy Box win probability certainty and the AI - based on large amounts of historical data - tries to land exactly at the right price point to reach maximum margin while keeping the win probability as a constraint. This is very different from the previous approach in our software and, to our knowledge, the current state of Buy Box optimisers in most channel management software which has usually been going step-by-step down until you win the Buy Box and then up again to increase margin. That approach is simply too slow and there are too many variables with influence that have changed in the meantime. Although we envision that larger and larger parts of the assortment will be priced by such goal-based nodes in the future, we believe they will always be combined with business rules on part of the assortment (again, it will be rules and AI). For example, our users may want to apply hard constraints (such as upper and lower boundaries) which can differ on different parts of the assortment. For promotions, retailers and brands will want to set hard price points during a certain time frame. Those are just some examples of why the goal-based nodes need to be combined with business rules. The crucial thing is that the principles of flexibility and transparency continue to be crucial when combining rules and AI. You need one single interface where rules and AI can be seamlessly combined, applied by business users, and it remains transparent how and why prices were set. Again, the Pricing Strategy Tree is the ideal concept that automatically ensures this. While this may seem to be a trivial design prerequisite, we see that other pricing software vendors that have begun making first steps with AI in their platforms often are violating this principle. There are vendors that offer “AI-only” with no capability to combine it with rules. We have seen vendors with a separate “AI-version” of their product, next to the old rule-based version of their product to let customers choose one of the products. Then, finally, there are vendors that perhaps are actually more of a team of pricing consultants, as they have to hardcode rules in the back-end, as well as requiring a lot of manual intervention from the team of the vendor for the algorithms to at least provide decent results. The latter case also leads to very long implementation times and learning loops that are too slow, as we learned when taking over customers of these vendors. “With that pricing tree, the flexibility is almost endless.” Pricing Team Manager of the largest beauty pure e-commerce player in Europe. Unleashing superpowers with Omnia 2.0 At Omnia, we believe we are still in the early stages of developing the ultimate pricing platform we aim for in the long term. Yet, we're immensely proud of how the Omnia 2.0 platform is already giving our customers superpowers by enhancing their capabilities more and more. We have made huge leaps in terms of dashboarding, and are constantly evolving those dashboards on a weekly basis thanks to the great feedback from our customers, and the way we have decoupled the visualisation layer from the data layer, enabling us to make fast interactions with little development time. We are clearly on the path of having that “God-view” of the market from the introduction above. Perhaps an even bigger leap has been the core topic of this article: the introduction of the Pricing Strategy Tree in Omnia 2.0, which combines ultimate flexibility and transparency, and we believe is the ideal concept to combine business rules with (partially AI-driven) goal-based pricing. We couldn’t be more proud of the feedback we have received from our customers, and the market as a whole, since the launch of Omnia 2.0 in the Summer of 2023. And we are very excited about further growing the superpower of our users by adding more intelligence to the Pricing Strategy Tree and the entire Omnia 2.0 pricing platform.

Dynamic pricing strategies and tactics to cope with inflation

High inflation is here to stay for years to come Across the world, inflation remains at sky-high levels, with the G20 average Consumer Price Index (CPI) at 9.2% year-on-year for July ‘22 and the OECD countries at 10.2%...

High inflation is here to stay for years to come Across the world, inflation remains at sky-high levels, with the G20 average Consumer Price Index (CPI) at 9.2% year-on-year for July ‘22 and the OECD countries at 10.2% year-on-year for the same month. As Roman Steiner, partner at McKinsey’s Zurich office, explains, there are five issues contributing to inflation that, together, add up to a perfect storm: labour costs and the availability of talent, as well as rising prices in agriculture, hard commodities, freight, and energy. Contrary to what the heads of Central Banks communicated at the start of the inflationary period, we shouldn’t expect inflation to be resolved soon. And, although aggressive interest rate hikes will somewhat help to temper inflation, it will remain a topic that should be top-of-mind at least for the coming years. Retailers have got the hardest “sell” to make Inflation typically cascades through the chain. It starts with higher energy and material costs, to higher component costs, to brands increasing the purchase prices retailers have to pay for finished products, to retailers having to try to get consumers to pay more for those products. In this chain, retailers typically have the toughest “sell to make”, as sustained high inflation - and particularly the soaring energy costs in many regions - are really driving consumers to actively search for savings and become more choiceful in how they spend their money. As Kevin Bright, McKinsey’s Global Leader of Consumer Pricing Practice, notes: “Consumers are substituting one category for another, exiting a category, or shifting to a different brand. There’s massive downshifting, particularly from mainstream brands to value brands.” All of this indicates that the concept of price elasticity should be top-of-mind for retailers. On an overall level, it’s likely that price elasticity across the board is increasing as many households are in a situation where they have to eat away from their buffers. But we also know that price elasticity varies wildly in between categories, so retailers need to be choiceful in where they try to pass on price increases to consumers and where to take a hit on their margins. Interestingly, this is the first serious inflationary period where retailers have pricing software available that can help them to effectively and efficiently cope with the high frequency and high volume of changes both in the purchasing side as well as the market side (changes in consumer prices). In the remainder of this article, we will provide some guidelines on how retailers could use the power of pricing software to cope with inflation. Playing mix when possible One of the interesting things that typically occur when retailers start with dynamic pricing - and, thereby, are able to reprice their full assortment with high frequency - is that the products in the long-tail start selling better. Because of this, we have seen many cases where, although the retailer decided to price more aggressively, which led to significant revenue growth acceleration, the average margin percentage still grew. While this might sound contradictory at first glance, this is because the high margin long-tail products start selling better and weight more heavily in the mix. How strong you are in a category will determine how much you can rely on playing mix. If your shop is often the starting point for shoppers searching, you can rely more on playing mix and it can be wise not to move down too aggressively on all products as the shopper will end up buying one of the products in your assortment, anyways. If, on the other hand, virtually all of the traffic in a category comes from product level out-clicks from comparison shopping engines (and so you don’t have a dominant position), you will need to price competitively on each and every product. Inform yourself on what your key competitors are doing and how they are responding Most retailers operate in an environment where there are multiple shops offering the same product. Especially in these times where e-commerce has become an integral element in many categories, the competitive landscape has become wide. That means that it pays for retailers to study the behaviour of their key competitors before making major changes to their own strategies. In order to help our customers get a clear overview of key competitors and their positioning on the overlapping assortment, we are about to launch the “competitor overview dashboard”. This dashboard shows the total number of competitors found and automatically surfaces your main competitors based on a “match rate” for the selection of the assortment you have made. The match rate breakdown allows you to quickly identify those competitors that have the biggest overlap with (possibly a subsection of) your own product assortment. This not only enables you to continuously verify your list of key competitors, but also to identify if new players have entered the market that require closer attention. The dashboard then shows the relative price positioning of each of those key competitors, as illustrated in the (anonymised) screenshot below. We advise you to use this screen both to determine your initial inflation response plans, as to verify responses by your competitors after you have made significant pricing strategy changes. Note that this screen enables you to go back in time as well, so you can compare today’s positioning with that of a week ago, per see. Differentiate in pricing strategies to maximise profit No matter how successful you will be in passing on price increases to consumers, it’s likely that you will have to absorb some of the hit via lower margins in these exceptionally challenging times. Omnia always recommends its customers to be very choiceful in where to be aggressive in pricing, and where to grasp the opportunity to take more margin, but in these inflationary times with margin pressures for all retailers, that matters more than ever. We also believe that this advice not only benefits our customers, but makes the market operate better as a whole. Our recommendation is in-line with what McKinsey advises in their article “Navigating inflation in retail: Six actions for retailers”: “Go granular with pricing and promotion and tailor value delivery to consumers. Instead of implementing broad price increases that may erode customer trust, retailers can tailor their inflationary price response by customer and product segment, considering both margin performance and consumers’ willingness to pay. Raising prices is unpleasant for both consumers and retailers. Retailers that take a surgical approach are more likely to emerge with profitability and consumer relationships intact.” There are multiple ways to operationalise this advice. One of the ways is to make use of the price elasticity classification algorithm that the Omnia platform applies to a large set of historical data in order to arrive at an elasticity classification of categories and products. You could then apply a strategy like “lowest price point of this list of five key competitors” in a highly elastic category while applying “most occurring price point in the market” in an inelastic category. The benefit of this approach is that you leverage the power of machine learning in the automated price elasticity classification, while maintaining the control and the explainability of pricing rules. Price elasticity is not the only way to segment your assortment and differentiate more in pricing strategies. You could also identify Key Value Items (KVIs), for example, based on which products are highly viewed. In order to automate this as well, the Omnia platform can be directly connected to the Google Analytics API which allows you to consider views on product details pages (PDPs) in your strategy. That is a way to implement a high-runner strategy. Both approaches to going more granular will lead to becoming price aggressive on products where it is more important to consumers and it will have more impact on sales volumes and price perception of consumers, and to take more margin on products where price is less of a consideration. From an overall perspective, this is likely to lead to the best combination of the top and bottom line, as well as price perception. Be prepared to move up The Omnia software basically enables you to automate any pricing strategy you can think of. Yet, not all pricing strategies are created equally. In these inflationary times where many retailers feel an urge to pass on at least part of the price increase they are confronted with to consumers, it is especially important to apply strategies that enable you to grasp the opportunities of a market that is moving up. To illustrate: when you are applying a pricing strategy as “price position one in the market,” it's highly unlikely that you will quickly pick up on the trend of “the market” moving upwards as the chance that there is still a “garage box retailer” selling for a low price is substantial. On the contrary, if you apply a basic strategy like “most occurring price point of a certain list of X key competitors” or a more nuanced “market conditions” based pricing strategy, you are much more likely to pick up on those upwards trends. Automatically reflect your purchase price increases Omnia recommends implementing safety rules that prevent you from selling products at a loss (or at too low a margin). Without such rules you might be matching a very deep promotion of another retailer for which that retailer has negotiated back funding from the supplier to (partially) fund such a deep price-off. That would be disastrous for your profitability. By feeding your purchase prices to the Omnia platform, and making sure your pricing strategies end with safety rules as “never go below purchase price + X%”, you are realising that purchase price increases have a real-time impact on your pricing. Also, here there are various ways to implement this. You could configure Omnia to simply set the price to the defined minimum boundary. But it is also possible to configure Omnia to not change the price when you are not able to match the price point of a competitor due to minimum margin requirements. That is where, again, the Market Conditions functionality comes into play. Track your progress It’s always important to track the impact of your pricing strategy changes on your performance in terms of sales and gross margin, and price-ratio vs the market. That is why the Omnia platform brings all of those metrics together in the Performance screen. In these inflationary times with margin pressure and increased importance of pricing, tracking these metrics is more important than ever. Summary While inflation undeniably puts retailers and brands in a very challenging position, understanding and using the full capabilities of a dynamic repricing software can help soften the blow. Combining careful analysis of competitor and consumer behaviour with granular pricing strategies will give you the best chance of walking the fine line of staying competitive in a highly dynamic market while ensuring the profitability of your business.

Business Guide to Predatory Pricing

In 2010, gained momentum with its combination of e-commerce and pricing. Rumours report that Amazon previously tried to buy the diaper supplier but was denied. Afterward, Amazon aggressively lowered prices...

In 2010, gained momentum with its combination of e-commerce and pricing. Rumours report that Amazon previously tried to buy the diaper supplier but was denied. Afterward, Amazon aggressively lowered prices on diapers and related products. Such tales are related to predatory pricing, a pricing strategy waged by suppliers to gain an edge on competitors. In this guide, you’ll learn: What’s predatory pricing? Is predatory pricing illegal? What are the advantages and disadvantages of predatory pricing? Ways to compete against predatory pricing and gain e-commerce sales What Is Predatory Pricing? Predatory pricing seeks to undercut the competition as part of a larger pricing strategy. While the pricing decision creates short-term losses, the main agenda is to debilitate the competition. Ultimately, a brand introducing predatory pricing makes rivals economically vulnerable, so it gets increasingly difficult for smaller businesses to compete and ultimately exist. A newfound market share makes the initiator of predatory pricing in an economic position to recoup the losses sacrificed. So, predatory pricing is recognised as a two-part process, beginning with a predation phase then leads to a period of economic recovery and eventual dominance. Predation Economic scholars recognise predatory pricing’s first stage of predation as when a brand initially offers a good or service at a below-cost rate. A small-scale strategy by a startup will not influence market price. However, a big supplier can effectively influence market costs with its pricing strategy. Predatory pricing works for large firms because such suppliers can sustain the losses long enough to change the market price (and behaviour of consumers), ultimately depressing the competition’s ability to keep-up or compete at all. Recoupment In the second stage, the dominant brand reaches a state of equilibrium, readjusting prices now that a larger share of the market is taken or a rival is no longer able to compete. The recoupment phase is where economists make the distinction between predatory pricing and competitive pricing. Predatory Pricing vs Competitive Pricing Regardless of intention, all brands seek profits, but predatory pricing differs from competitive pricing. Predatory pricing does not reach equilibrium once market share is gained and the competition defeated. While competitive pricing can benefit the consumer, in the long run predatory pricing only serves to benefit the perpetrator. Once dominance is reached, predatory pricing takes effect and a monopoly becomes a reality. Predatory pricing only benefits the seller - the reason why it is illegal under many laws. However, in practice, it’s somewhat opaque to distinguish competitive from predatory pricing - even in courts of law. Examples of Predatory Pricing In 2010, Amazon, a growing giant of ecommerce, engaged in a price war with, a niche competitor that quickly gained popularity and revenue. Rumours circulate that Amazon tried to acquire but was denied. Afterward, Amazon aggressively lowered prices on diapers and related products. Furthermore, Amazon introduced more ways for customers to save on related products; it launched Amazon Mom, featuring cashback, free shipping, and more discounts. However, predatory tactics do not always prove successful. In a bromine price war, American-based Dow Chemical gained presence within the European market. An established Euro-brand sought to “punish” Dow by offering bromine at below-cost prices to Americans, hoping to ruin Dow’s chances of making profits within its home market. Unfortunately for the European brand, Dow took advantage of that lower cost, bought low, then sold it back to the European market at a profit. Another tale of predatory pricing gone awry involves the New York Central Railroad. In an attempt to outdo Erie Railroad, the NYCR charged a mere dollar per car for cattle transportation. However, the newfangled trend benefitted the Erie Railroad too, for it also began hauling cattle. Is Predatory Pricing Illegal? True predatory pricing is seen as a means to a monopoly. The United States has a history of recognising and punishing predatory pricing. Antitrust laws seek to foster healthy competition while thwarting opportunity for monopolistic business practices. According to American antitrust laws, most “forms” of predatory pricing are illegal. Predatory practices are recognised as instruments of corruption and greed. However, where does greed stop and the need for competition begin within a system that ultimately seeks profits? The Federal Trade Commission seeks to fully analyse any claims of predatory pricing. Moreover, the US Department of Justice recognises predatory pricing as a problem, growing increasingly aware of the unscrupulous pricing strategy. It can be difficult for plaintiffs to make objective claims that hold in court. Successful antitrust suits are based on a plaintiff clearly establishing that a competitor’s pricing will condemn rivals as well as cause a direct and negative impact throughout the market as a whole. Furthermore, US courts define predatory pricing as that “set below a seller’s cost.” However, it is not against the law for a seller to set prices in such a manner if the reason is justifiable and not perpetrated to directly eliminate competition or ultimately monopolise the market. If pricing is set below cost for legitimate purposes, such as to attract a larger portion of the market, it is not predatory pricing. “Catching” a brand waging a potentially unscrupulous pricing strategy is delicate practice. For example, penetration pricing could look and feel like predatory pricing to a rival. However, if the pricing strategy is short-lived and not a long-term plan, it is not illegal and deemed “fair play” within the world of business. The Effects of Predatory Pricing While unlawful conduct is a black-and-white issue, pricing strategy remains somewhat of a murky area. One’s interpretation of “predatory” could be another’s version of “smart business.” Economic theories see possible advantages to predatory pricing. For one, predatory pricing may become a “survival of the fittest” regarding the brands within a given market. While buyers may initially be interested in price points, some argue that price alone will not condemn inferior products and services. Therefore, predatory pricing is merely a speedier means to an end of greater selection for consumers. Furthermore, some see the exit of particular brands as an invite for new and innovative brands to enter the marketplace, challenging behemoth competitors in new ways that ultimately serve the greater good of the market and consumers. Lastly, in regards to seasonal items or perishable goods, predatory pricing may help a brand in a short-term predicament of needing to clear shelves for more stock or to sell items before selling them at all is no longer an option. On the other hand, taking competitive pricing too far becomes illegal depending on government jurisdiction. Therefore, any brand willing to wager a predatory pricing strategy runs the risk of legal repercussions and attracting legal suit. Furthermore, predatory pricing does not escape the perception of consumers. In some cases, aligning your brand with “cheap” prices could have a negative effect. An overall impression of frugality may turn some consumers away. In worse scenarios, consumers view your brand as a selfish, predatory entity, ultimately existing to gain the most profit regardless of what’s best for the market or its consumers. Advantages of Predatory Pricing Provides an opportunity to overcome barriers in entering a new market. For those already with market share, it may prevent rivals from entering a market. It exposes rivals to economic vulnerabilities. A competitor that is unevenly regarding economic risk, invites the possibility of greater devastation if they cannot amass market share. Predatory pricing invites the potential for total market dominance once it effectively changes consumer perception and behaviour. Disadvantages of Predatory Pricing It attracts potential lawsuits or deemed illegal, depending on jurisdiction Brands using predatory pricing run the risk of ultimately losing money if the minds of consumers are not affected or monies lost in the initial phase are not compensated in the recoupment stage. In some cases, a predatory pricing brand may be sowing the seeds for a rival’s eventual return to market, for at times, defunct resources can be renewed. For example, the Washington Post went bankrupt in 1933 only to later become the biggest newspaper in Washington. Predatory Pricing in the Present - A Look at Amazon It’s difficult to pinpoint how dominant Amazon is regarding ecommerce, but it’s estimated that it accounts for 40% of US retail sales (Some believe the market share is somewhere closer to 50%.) Many smaller brands find it undeniably necessary to access Amazon’s Marketplace, with some estimating the marketplace is the sole source of income for a whopping 37% of its third-party suppliers. Moreover, Amazon’s marketplace is not the only place the company reaps profit. Amazon Web Services, offering cloud resources, also adds to its coffer. Amazon’s share within the infrastructure market amounted to 33% for the second quarter of 2020. That’s equal to the combined share of three of its largest competitors. As with goods purchased on the Web, the pandemic has not had a negative impact on Amazon’s ability to sell. Cloud infrastructure service revenues eclipsed $30 billion in the second quarter of 2020. There’s no debating that Amazon can easily afford to cut prices in the short-term in exchange for ultimate dominance. Amazon can influence prices, consumer behaviour, and the existence of the competition. Many businesses understand that you don’t beat Amazon. You join them. However, a number of strategies help smaller brands compete in niches and make headway in particular ecommerce markets. Here’s how they are keeping up with ‘the Amazons’ of the business world. Ways Businesses Compete with Predatory Pricing Many entrepreneurs and small business owners want to make money, but they want to do it by building a reputable and longstanding business model. While no brand is going to be sad about debilitating the competition, most find legitimate and law-abiding ways to success. Branding Starbucks coffee isn’t cheap but that doesn’t stop its penetration of the coffee market, reaching a net revenue of $26.5 billion in 2019. It sees year-over-year increases for the last decade. There was once a time when consumers would certainly balk at Starbucks price point. Now, they can’t seem to resist taking out their wallets regardless of the attached price. Retention What’s the economic benefit of retaining existing customers versus taking the marketing risk at attracting new ones? According to research, 58% of customers switch brands. For many, retaining customers is less costly than acquiring new ones. Do what you can to express appreciation to existing customers, for there’s a 70% chance of selling to a repeat customer. However, those odds drop as low as 5% when attempting to sell to a new one. Ecomm SEO Search engine optimisation is no secret weapon. It’s an undeniable component of digital marketing strategy. Ensure your site’s pages are optimised for targeted keywords. This requires strategic keyword research, effective product descriptions, as well as paying attention to user experience and site architecture. The first organic result aligned with a Google search has an average click-through rate of 28.5%. And, the average CTR falls dramatically after position one. A study found the second result to get a 15% CTR, and the third, 11%. By the time a user gets to the tenth result or estimated bottom of the first page of results, the CTR drops to 2.5%. Sales Funnel How are your website visitors behaving? An analysis of analytics can reveal insights related to the sales funnel. A study finds that about half of ecommerce visitors look at product pages but only about 15% add items to site shopping carts. However, a mere 3% actually go ahead with the finalisation of purchase. Target troublesome areas of the sales funnel, identifying needs for improvement and finding why some consumers are not buying from you. As mentioned, only 3% buy what’s loaded in their cart. What’s the reason for your shopping cart abandonment? Shipping We live in a world of online shopping and online shoppers don’t like added costs. Therefore, added costs, such as cost of shipping, remains a top reason for shopping cart abandonment. An additional percentage of customers abandon carts after finding the delivery will take too long. 9 out of 10 customers agree that free shipping is a premier incentive. 93% of online buyers will buy more if free shipping is an option. Moreover, 58% add more items to a cart to qualify for free shipping. Pricing A consumer survey reveals that 82% identify price as a very important reason for making a purchase. Low shipping costs come in second as 70% of respondents find it important. Therefore, there is no denying that pricing is a main concern for smaller ecommerce brands that compete with online competitors like Amazon as well as need to combat the ROPO effect (researching online but purchasing offline). Yes, there is no denying the importance of pricing. However, implementing a pricing strategy proves difficult for many suppliers who lack the resources and time for proper devotion. Yet, some have adopted dynamic pricing software, an automated way to set prices and stay competitive. Predatory Pricing vs Dynamic Pricing Automated pricing software allows for a dynamic way to go about cost strategy. What if a business could apply a dynamic pricing strategy at scale, regardless of offered goods and services? Agile Pricing Dynamic pricing’s algorithm provides an agile way to implement pricing. Gather data and enjoy the freedom of setting prices at a rate that works best for your company’s short and long-term goals. Set Rules Automated pricing software allows for your company to set pricing standards. Implement your own “pricing rules” and get as general or as granular as you would like regarding every product or service offered. Price Sensitivity Automated pricing software accounts for each product and service offered, so the price of each item appropriately compensates for sales volume, number of items, time of day, etc. Every product is considered and automatically assorted according to optimal price. Total Automation Total automation allows for complete pricing analysis of the market, including competitor pricing. Dynamic pricing software gathers competitor data, internal metrics, market prices, consumer behaviours, and then provides optimised price suggestions. Market Awareness Dynamic pricing software does not work in isolation, making pricing suggestions based on mysterious precedents. The software provides reasoning for price suggestions, so users can grow market awareness as well as manually override when they see fit. Conclusion Predatory pricing is an illegal practice but it would be naive for smaller and burgeoning ecommerce businesses to deny predatory-like behaviours exist. Given the growing popularity of ecommerce and its explosion over the last decade, established and new brands need the knowledge and tools to compete with Amazon, Target, and Walmart as well as local vendors. In the short-term, predatory practices and giant competitors, like Amazon, are not going away. If you’re not going to beat them, then you must find a way to join-in and “match” competitors. Solutions such as dynamic pricing software level the field of competition and help small ecommerce brands succeed regardless of the size of rivals and aligned pricing strategies. Other Pricing Articles: What is Value Based Pricing? What Is Penetration Pricing? What Is Cost Based Pricing? What Is Odd Even Pricing? What Is Charm Pricing? What Is Psychological Pricing? What Is Bundle Pricing?

Webinar: Adapting To A New Normal After Covid-19, A Retail Perspective

In this webinar you'll learn: How consumer behavior has changed during the corona pandemic What the retail response has been How retailers can adapt to the new normal What the world of retail will look like at this time...

In this webinar you'll learn: How consumer behavior has changed during the corona pandemic What the retail response has been How retailers can adapt to the new normal What the world of retail will look like at this time next year How pricing strategies can protect margins, stock levels, brand perception, and sales.

Omnia Retail Targets International Growth with Capital Injection by Connected Capital

Omnia Retail supplies retailers with algorithm-driven software for dynamic pricing and dynamic online marketing. With this Software-as-a-Service (SaaS) platform, Omnia Retail is the market leader in the Netherlands....

Omnia Retail supplies retailers with algorithm-driven software for dynamic pricing and dynamic online marketing. With this Software-as-a-Service (SaaS) platform, Omnia Retail is the market leader in the Netherlands. Omnia will use Connected Capital's capital injection to finance its international growth ambition. Omnia Retails' software enables retailers to automate their pricing and online marketing campaigns in a simple and effective way. The software gives category and marketing managers superior insight into their product range, prices and marketing efforts. This enables them to effectively make strategic choices and automatically process these at a high frequency. Omnia Retail scans and analyses more than 500 million price points every day. Based on this, the system makes more than 7 million daily, automated price adjustments to its customers' product ranges. For each client the individual, optimal price point is calculated, taking into account factors like price elasticity, logistics costs and purchase price. In addition, factors such as weather forecasts and product-related promotional activities are analysed. In order to optimise online marketing, Omnia analyses and prioritises more than 2 billion options a day on Google Shopping and many other marketing channels. The result is that clients benefit from a strong growth in turnover and revenue. From our office in Amsterdam, Omnia Retail services more than 80 retailers among which are leading online and offline players such as, Wehkamp, Nextail and Decathlon. “We have the luxury of being the only company in the world with a system that provides integrated pricing and online marketing information based on advanced algorithms,” says Sander Roose, who founded Omnia Retail together with Herman de Jager. “Large international retailers are starting to contact us, which makes international upscaling both easier and necessary. With Connected Capital's investment and strategic support, we can enlarge our team and further develop our product.” Technology increasingly important in retail Technology is quickly replacing location as a success factor in retail. Instead of a few times a year, prices are currently adjusted several times a day. The tried and tested promotional folder has been overtaken by real-time auctions for spots on online price comparison websites. With these numbers and adjustment frequencies, regular manual category and price management are no longer sufficient. Software that combines raw calculating power with a price and marketing strategy is an absolute must for today's retailer, both online and offline. The advent of big data and artificial intelligence, which are already being used by players like Amazon and Alibaba, has led to a strong growth in the demand for this type of software both in Europe and elsewhere. Rock-solid product with great potential for growth Omnia Retail is in a perfect position to meet the future demand of retailers with regard to dynamic pricing and dynamic online marketing. Connected Capital's investment will mainly be used to substantially enlarge the team, the services, and the product portfolio in order to reach Omnia's growth targets. In addition, Omnia will start partnering with international consulting partners and online marketing agencies. Apart from capital, Connected Capital will offer hands-on strategic and operational support to Omnia Retail's management to help further growth. Connected Capital's team has a varied background in venture capital, private equity and in top-tier strategy consulting and thus brings extensive and complementary knowledge and expertise to the table. Geert van Engelen, partner at Connected Capital: “Herman and Sander are very strong and experienced and lead a team of talented developers and sales consultants. Together they have built a rock-solid company with an extremely attractive growth potential in a highly innovative market. The company fits the investment philosophy of our fund and we look forward to using our knowledge, network and energy to help Omnia Retail reach its growth ambition.” About Connected Capital Connected Capital is an independent growth capital investor focusing on innovative technology companies that contribute and respond to increasing digitalisation in the Benelux and Germany. Apart from capital, Connected Capital also offers intensive support with regard to evaluation and implementation of growth strategy, globalisation and general management support. Connected Capital has a professional and complementary team of six experienced professionals with a background in private equity and strategy consulting.

Dynamic Pricing is Also Possible in Physical Stores: Here’s How

More and more e-commerce players use dynamic pricing to automate pricing to grow sales and contribution margin. This leads to frequent price changes on their entire stock with some products even getting repriced...

More and more e-commerce players use dynamic pricing to automate pricing to grow sales and contribution margin. This leads to frequent price changes on their entire stock with some products even getting repriced multiple times a day. For physical stores, the process of printing and changing a single price tag in a physical store takes several minutes and physical stores carry many thousands of products. How then can omnichannel retailers keep up with pure e-commerce players, for whom changing prices is a completely digital event taking at most milliseconds, and therefore are changing their prices multiple times per day? This is a question we often get from omnichannel clients and omnichannel retailers considering implementing dynamic pricing. In our many years of experience in implementing dynamic pricing at omnichannel retailers, we have learned that dynamic pricing for omnichannel retailers is certainly possible. We present an action plan for implementing dynamic pricing, ranging from tips to create political momentum in often quite traditional retail organizations to technical considerations, such as electronic shelf labels Step 1: Building the business case for dynamic pricing Before e-commerce, retailers had to operate under the “shelf space is limited” constraint. E-commerce has introduced virtually unlimited shelf space: they are only limited by the size of their warehouse. Drop-shipment even removes that constraint. Many omnichannel retailers have also grasped this opportunity provided by e-commerce. They have a core product assortment which is carried both online and in physical stores, but they also have a considerable web-only products. For omnichannel retailers we, therefore, recommend a pilot period during which dynamic pricing is used solely for the web-only products. This provides them with a solid business case to prove to management that dynamic pricing also has a huge impact on sales and contribution margin at their retail format, not just for Amazon. If an omnichannel retailer does not have web-only assortment, it could decide to run a pilot on a subset of the omnichannel assortment that is so limited that it doesn’t have a significant impact on store operations. In that case, it is still crucial to make sure that the stores are aware of the importance of the pilot and to make sure store execution is optimal. This prevents the risk of drawing the conclusion that dynamic pricing does not have an impact while it was caused by poor store execution. If both alternatives for the pilots are not possible, omnichannel retailers could use the 10-20% average contribution margin increase that Omnia Dynamic Pricing users see as input for their calculations. It should be noted that there is huge difference in the performance of a well implemented value-based dynamic pricing system and a poorly implemented rule-based dynamic pricing system. The latter can even be margin eroding. Step 2: Store rollout by electronic shelf labels or reduced frequency of changes Once the business case has been established, the omnichannel retailer needs to plan a roll-out for their entire range of products. The retailer needs to make an important decision at this point on whether to implement electronic shelf labels (ESLs). Over the last couple of years there have been great improvements in performance of electronic shelf labels, mainly driven by e-ink technology, and costs are continuously decreasing. Several providers of digital shelf strips are sesimagotag, Pricer, and Displaydata. Considering an average store carries thousands of products, electronic shelf labels will still be a significant investment. Typical payback periods of ESLs are 18-24 months. It is, however, important to stress that the impact of dynamic pricing is not just driven by “smarter price points” but also by increased frequency of price changes. Electronic shelf labels help to increase frequency of price changes and thereby returns on dynamic pricing. Some omnichannel retailers decide on a middle ground, implementing electronic shelf labels only for fast moving products with a high frequency of price changes. The route of implementing electronic shelf labels primarily has technical challenges, however. The ESLs need to be placed in the stores, there needs to be a communication network and the system needs to connect with the retailers' ERP system. From the perspective of this article, it is, however, the most straightforward implementation as – after implementation – the retailer has complete flexibility in frequency of price changes. If the business case for implementing ESLs does not (yet) seem feasible, the retailer needs to take a different approach. The retailer first needs to decide whether to couple the frequency of online and offline price changes. The advantage of coupling the frequency of price changes is that there can never be price differences between online and offline purchases, which is of course an important consideration for omnichannel retailers. However, in this approach the retailer does not exploit the ability to have as high a frequency of price changes in its webshops as its e-commerce rivals. This would make the retailer competitive on all online touch points where shoppers carry out their research, such as Google Shopping and comparison shopping engines. An alternative approach for the retailer therefore could be to have a (much) higher frequency of price changes online than in the physical stores. We would recommend retailers taking this approach to have the policy that – when shoppers note a price difference between online and offline – they always get the lowest advertised price. In any case, the retailer will have to operate with a relatively low frequency of price changes in the physical stores. Most of our clients start with once a week. Once store operations get used to the new process, this could be increased; for example to twice a week. Final thoughts We believe the approach without electronic shelf labels to be an intermediary option, which of course is still a great improvement versus not doing dynamic pricing as omnichannel retailer. Ultimately, we expect all omnichannel retailers to fully adopt ESLs. The shift to online orientation for products, increases in frequency of price changes and developments in ESL technology will accelerate this trend. What are your thoughts on (implementing) dynamic pricing in physical stores? Please let us know!

Important Update: Google Tightens their Requirements for EAN / GTIN Codes

We would like to inform you of an important update by Google concerning the Global Trade Item Number (GTIN) requirements, and show you how you can utilize Omnia to give your products the appropriate GTIN format. In 2015...

We would like to inform you of an important update by Google concerning the Global Trade Item Number (GTIN) requirements, and show you how you can utilize Omnia to give your products the appropriate GTIN format. In 2015 Google made GTINs obligatory for the products of 50 specified brands. From now until May 16th 2016, it is mandatory for advertisers to supply the correct GTINs and the corresponding brand for all new products for which a GTIN code has been assigned by the manufacturer. What is a GTIN? A GTIN makes a product identifiable anywhere in the world. Plainly speaking, the GTIN is the barcode of a commercial product. In Europe it is popularly known as the European Article Number (EAN) or the International Standard Book Number (ISBN) for books. If there is a GTIN available it will be shown below to the barcode on the package. The length of the GTIN depends on the product type and where the product is sold. For Europe, the EAN (in Europe/GTIN-13) is a 13-digit number underneath the barcode. Why this change? Providing GTINs is essential for Google to recognize your product and supply their users with the most accurate and complete information. If Google knows exactly what you are selling, then they can help you improve the performance of your advertisements by adding valuable information and showing the ads in a relevant way. In addition, it allows Google to match different retailers' offers for the same product. This result is better visibility, improved targeting and more ads being setups. Therefore, you should add GTINs for all of your products in the feed. If there is no GTIN for a product in the feed, it is denied and will not show up in Google Shopping results. There is no point in creating a fake GTIN because has connections with all GTIN-databases and will immediately recognize if there are fake GTINs in your feed. Google reports that retailers that added correct GTINs to their feed had an increased conversion rate of up to 20 percent. What does this mean for you? When you target Australia, Brazil, France, Germany, Italy, Japan, The Netherlands, Spain, the Czech Republic, the United Kingdom, the United States, or Switzerland, starting May 16th 2016 you have to provide correct GTINs and the corresponding brands for all new products that are in stock and where a GTIN is supplied by the manufacturer. If you sell products that are made-to-order, hand-made or vintage products, these changes have no influence on you. In this case, you could improve your results by providing unique product IDs. Don't have GTINs? Your suppliers should be able to help you with all required GTINs. If not, then you can contact the manufacturer, or check the barcode on the packaging. For the latter, you can use a barcode-scanner app. Alternatively, some GTINs can be found in a GTIN database such as (this particular site is mainly for electronics). Correct GTINs are important for the optimal use of the Omnia Modules Providing correct GTINs for your products is very valuable and will pay off in both the areas of pricing and marketing. The GTINs form the basis of the Pricewatch and Dynamic Pricing modules in Omnia. Without GTINs we are not able to compare your products with competitors and it is not possible for the Dynamic Pricing engine to incorporate market prices in its calculation of optimal price points. Additionally, GTINs are the basis for the optimal performance of all marketing channels at a product level. Products with GTINs will have improved exposure on marketing channels, resulting in a substantial traffic increase for these products. Moreover, they allow the marketing channels to categorize products and expand the content of advertisements. Because of this, the consumer will be exposed to more information, and those who end up on your website will therefore convert to buyers more frequently. How do I adapt my feed in Omnia? The GTINs are entered by the Omnia user in their input feed. For each product there is a field for the correct GTIN code. In the ‘mapping’ section, Omnia has a function called ‘MakeEAN’, which will add zeros at the beginning of the GTIN code to reach the necessary 13 or 14 digits (if applicable). For example, the function will change “87263517” to “000087263517”. Moreover, the function checks to see if the GTIN is indeed an official GTIN. You are able to easily perform the same check with this tool. If the GTINs (EANs) are correctly entered in Omnia - Connect, then Omnia will automatically make sure that the right format will be supplied to marketing channels. When are these changes occuring? Google started warning advertisers February 8th 2015. Since this date you have seen a warning at the product level in the tab ‘Diagnostics information’ for products that do not meet the requirements. Update these products in accordance with the warnings. Starting May 16th 2016 Google will be enforcing this change. From this date you will see denials at the product level in the tab ‘Diagnostics information’ for all products that do not meet the requirements. After this date you have to adhere to the GTIN-requirements to be able to keep showing advertisements for your products. Want to know more? Do you want to know more about how to correctly provide GTINs to your marketing channels? Reach out to one of our Omnia consultants via email: or call +31 (0)35-699 02 22. Good luck!

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