The ability to reprice your product at a high frequency is one of the most impactful tools to control revenues and margins. The whole market is transparent and price differentiations are very visible to consumers. Price is the major factor influencing sales decisions for consumers.
Online retailers constantly exploit this to get the competitive advantage. They can instantly change the price on the website, maybe multiple times a day. This causes a dilemma for many omni channel retailers that deal with paper price tags.
Of course, it is possible to install electronic shelf labels in all the stores as described in further detail in our blog articles about dynamic pricing in physical stores and 5 benefits of electronic shelf labels. However, electronic shelf labels are a big investment and take time to implement.
So how do I create as much pricing power without putting a large burden on the stores? A few tips:
1 - Split Online Only & Store Assortment And Update With Different Frequencies
Splitting your assortment in web-only and omnichannel assortment allows you to update the assortment in different frequencies. Despite its simplicity, this highly effective split in assortment is often still not implemented in dynamic pricing strategies and systems.
As the shelf space of stores is limited and your webshop is not, the online-only assortment is larger than your omnichannel assortment. With your online-only assortment there are no physical shelf labels that need to be replaced and you can (and should) update these prices with a higher frequency to compete with your online only competitors.
Make note products that are temporarily out of stock in the stores can be seen as “online-only assortment.” Be sure to add these products to the higher update frequency as soon as this happens.
2 - Do Not Treat A Price Change Of Every Competitor In A Similar Way
As described more extensively in the blogpost on "how to respond to competitor price changes without starting a price war?" it is best to split your competitors in different tiers.
This allows you to follow any price change of your major competitors directly, while only following smaller competitors when multiple of them changed their price.
Regarding your omnichannel assortment, be more strict on who and when you want to follow.
- Only take your omnichannel competitors into account, especially for specific products that consumers would like to pick-up in the store straight away (e.g. household products)
- Only change your price if multiple (major) competitors changed price
This lowers the frequency of price changes significantly and makes it easier for the stores to keep up with the required price changes.
3 - Only Change Your Price When The Price Gap Is Significant
Once you have created those competitor groups, differentiate between price gaps you are willing to allow. Regarding your online assortment, we advise following price changes of only a few percent or euro. These small changes are however not worth the effort for your omni-channel assortment. It’s good to add some additional logic to take this into account.
4 - Combine With Other Data Points Like Your Sales Data
Split the assortment further by looking at other data points, like your sales data. You would not want the price gap of your main competitors to get too large for your top selling products. This hurts your revenue and pricing image the most.
For those products that only sell occasionally, it doesn't matter if there is a temporary price gap. You can use this difference in your pricing setup. For example:
- For products that are sold more than five times in the last four weeks, follow the pricing of multiple, larger competitors. Allow for a small price gap only.
- For products that sold less than five times, look at a few major competitors and allow for a slightly larger price gap.
Next to sales data you could for example also use your stock data as additional input. If you only have a few products left in stock, it might not be necessary to reprice continuously. These products will eventually sell out and it doesn't really matter if you sell the last ones a bit slower.
More of these scenarios are covered in the blogpost: the margin vs revenue dilemma: how to stay competitive and profitable?
So... how do you implement such Logic?
We recently added new (beta) functionality to our pricing engine, called market conditions. This allows you to select parts of your assortment on both product assortment conditions as well as market conditions:
Product assortment conditions
The *if* statement that you are familiar with lets you select any product characteristics. Either static parameters, like categories and brands, or more dynamic parameters, like sales and stock levels.
An additional layer of conditions that allows you to select any combination of market scenarios. There are 3 templates:
- When a certain number of competitors are present for that product
- When a certain number of competitors are lower/higher than my current selling price
- When a min/max/avg/most-occuring price is lower/higher than my selling price
The combination of product assortment and market conditions is very powerful and enables you to outsmart competitors by tuning our repricing engine. This allows you to follow your desired pricing strategy regarding any subset of your assortment and in any market scenario.
The market conditions will allow you to implement the above tips. Moreover, conditions allow you to create solutions for other dilemmas as described in the “dilemma blogs”
Berend started working at Omnia Retail as a Consultant and Product Manager four years ago. He holds a MSc degree in Industrial Engineering and Management from the University of Groningen.