Price Points by Omnia Retail
19.04.2024
Reflecting on Price Points Live: Lessons for e-commerce in 2024
It’s been a few weeks since Europe’s e-commerce and pricing event of the year, produced and hosted by Omnia Retail, took Amsterdam by storm at the modern Capital C building in early March. Our invited guests were on the...
It’s been a few weeks since Europe’s e-commerce and pricing event of the year, produced and hosted by Omnia Retail, took Amsterdam by storm at the modern Capital C building in early March. Our invited guests were on the receiving end of the knowledge and expertise of some of the e-commerce world’s greatest minds and leaders, making for a successful annual rendition of Price Points Live. On this year’s stage was Prof. Hermann Simon, the co-founder and chairman of Simon-Kucher, who was a returning speaker at Price Points Live. He is known as the world’s leading expert on pricing and growth consulting. Also on the stage was Natalie Berg, an analyst, author and podcast host; Dr Doug Mattheus, a business executive and consultant in marketing, retail and branding; Gerrie Smits, a business consultant, speaker and author, and lastly, Cor Verhoeven, Group Product Manager at Bol, specialising in pricing and assortment insights. To conclude, the warm and confident Suyin Aerts returned as our host. Whether it be transparency in pricing, marketing or e-commerce practices, our panel of speakers bring more than a century of collective knowledge and experience to the table. So, what did our guests learn and take away from each of our speakers? What can brands and retailers understand about pricing, consumer behaviour and branding? Omnia shares the insights and knowledge pertinent to e-commerce success in 2024. Natalie Berg: E-commerce author and analyst “We are living in a perpetual state of disruption, and retail is no stranger to this, but the past few years have seen unprecedented levels of volatility and uncertainty,” shared Natalie. Whether we want to call it disruption, a seismic shift or a geopolitical and socio-economic tsunami, the one mitigating force to today’s ecommerce landscape was - and still is - Covid-19. “Covid has digitised our world - the way we live, the way we shop, or the way we exercise. And when it comes to shopping, most of it is still done in a brick-and-mortar store, but the majority of these sales are digitally influenced,” shares Natalie. This has brought brands and retailers to the popular omnichannel strategy, which has become more and more common and necessary. However, Natalie predicts that retail will start moving from omnichannel to ‘unified commerce’ which is “not just about being present in those channels but centralising those operations and connecting everything in real-time,”.. We see this already taking place with the partnership that shocked the e-commerce world in 2023 when Meta and Amazon announced that Meta users can shop Amazon products without even having to exit their Instagram or Facebook apps, creating a centralised and synonymous experience for social commerce and marketplaces’ shoppers. She goes on to speak about the customer’s time and how much more precious it is going to become for e-commerce and retail leaders. “28% of Amazon purchases take place in three minutes or less,” she stated,” so if you’re not saving a customer’s time, you have to be enhancing it.” A customer’s tolerance for mediocrity or for average service or experiences is getting lower and lower, which is how the customer experience has become the new currency. “It’s about really wowing your customers. Going beyond! Disrupting the status quo.” She shares that a new phenomenon is taking place because of this refreshed focus on the customer experience: The democratisation of white-glove service. “It’s a technology that is helping brands and retailers give this level of service,”.. This includes Walmart, in the US, which will go into your home to stock your kitchen with your newly purchased groceries while other retailers will collect your returns from your house when they make delivery, allowing the customer to kill two birds with one stone. Adidas in London has installed a system called “Bring it To Me” in change rooms where, if you want an item that’s in a different colour or size, a store assistant can collect it for you without you having to leave the change room. “Tech-enabled human touch - that’s what will separate the retailer winners from the retail losers,” Natalie argues. To conclude, Natalie speaks on how the use of AI will empower both e-commerce players and customers when shopping. “In the future, we won’t know where the physical world ends and the digital one begins,” giving an eerie yet exciting conclusion. “As a brand or retailer, standing still is the most dangerous thing you can do.” Dr Doug Mattheus: Consultant and branding expert Hailing from South Africa and living in the UK is Dr Doug Mattheus whose presentation focused on the art and science of brand building. So, what makes a brand long-lasting? “It is a mix of tangible and intangible features that, if properly managed, creates influence and generates value,” says Doug. But, as we’ve seen brands rise and fall over the last few decades, what are some of the factors that have created the most valuable brands in the world, from Apple to Mercedes Benz to Walmart? Creating a brand hook The ways in which a customer can get hooked on a brand are limitless: Reflecting back to the time he received his first pair of Nike shoes in high school, the one item Doug cared about keeping just as much as the shoes themselves was the box they came in. “It wasn’t just a box - it was a Nike box.” Fast-forward to adulthood, he visited a Harrods store and witnessed customers buy empty single-use packets and bags with the Harrods logo on them. In a more recent case, the fragrance of bath bombs and body scrubs in the air at a mall or airport has become one that is synonymous with LUSH. “Just follow your nose,” says Doug. “So, what is your brand hook?” On the contrary, we see brands like The Body Shop that have struggled to keep up with digitally-native challenger brands like Drunk Elephant, Glossier and Paula’s Choice in the personal care market and is undergoing mass closures across the US and EU. Doug’s advice to brands is to create a unique hook - whether it be in the sights, smells, sounds or physical world. What’s your differentiator from competitors? A small player in the award-winning wine industry in South Africa is a vineyard called Vergenoegd Wine Estate. By a large stretch, it is not the most well-known or award-winning brand. However, this boutique vineyard did not refrain from harnessing the commercial value of organic farming. The winemakers introduced runner ducks to the vineyard, which roamed around eating worms, snails, and bugs that could be detrimental to the vines. In addition, these ducks became a tonic for families and couples with kids wanting to experience the vineyard while having something fun for children. The ducks have become a unique feature to Vergenoegd Wine Estate and a key driver of foot traffic and revenue. “This is a great example of how a small player is not being defined by its smallness and not being intimidated by bigger players.” Multiple touchpoints for customers Stemming from Natalie’s thoughts on brands having to go the extra mile to impress customers, Doug shares that there are moments of magic around us at all times, and it is up to business leaders to find and develop those moments. However, where there is ease and innovation between brands and customers (like at Nordstrom in Seattle, USA who did not want to lose their “eyeball moments” with customers from rapid digitalisation, began offering curbside pick-up so they can still have face-to-face interactions with shoppers), there are also moments of friction and time-wasting that cause frustration for customers. It’s about fine-tuning interactions and creating moments that make a brand memorable. Relevance: Do you reinvent like a butterfly or a bull? As the title suggests, brands in many verticals, but especially in fashion, personal care, sporting goods, fitness, and electronics, are faced with the rapid rise of digitally-native brands that exist to challenge the status quo. In fact, these brands, which have only known a digital world, are, in fact called “challenger brands” because of the innovative approach to design, production, supply chains, customer interactions, marketing, and everything under the e-commerce sun. According to Doug, brands who reinvent like a butterfly are those who can go with the changes and challenges in front of them with agility and resilience while those who face reinvention like a bull may be stubborn and ignorant and may face their own downfall. Cor Verhoeven: Group Product Manager at Bol. Coming from one of Europe’s largest and most successful marketplaces, Bol., Cor Verhoeven delved into pricing, specifically how Bol. tackles bad prices on the platform and what the negatives are for a marketplace or e-commerce brand. “We have 38 million items for sale, 13 million active customers, and 50,000 unique selling partners. That means almost every home in the Netherlands and Belgium has bought something from Bol.,” says Cor. With numbers like that, it’s more than possible that a marketplace would run into pricing issues. “Part of our strategy is to make Bol. an equal playing field. Our sellers must be able to make a living off what they sell on Bol. - it’s not just us that needs to do well.” So, how does a customer-centric pricing strategy fall into this? “We all work hard to make sure that the price of an item is not the reason someone doesn’t buy something on Bol.,” says Cor. “Pricing is important because it positions you in a competitive market, it establishes customer trust, and it establishes customer lifetime value. Our success is caused by growth, monetising and retaining in a loop,” explained Cor. “Our three main beliefs when it comes to pricing are High-quality deals, trustworthy and reliable prices, and competitive prices in line with the market.” The balancing act between insult pricing and best-in-market pricing is tricky and precarious, which is why Bol. judges their products on their prices. “If a product’s price is above an allowable price, we take it offline to product the customer,” Cor stated. How does Bol. decide on what is an allowable price? “We source benchmarks. If a product has a benchmark, it’s given a classification - an insult price or an allowable price - and business rules are set,” explained Cor. “When we don’t have a price benchmark, that’s when we have little control.” When Bol. doesn’t have a price benchmark for a product, they utilise their data science model to predict a price while, daily, the model is manually looking for prices to benchmark those products.” The result is a price for a product that is more aligned with the market and within the boundaries of what a customer will accept. “Of course, taking insult prices offline decreases revenue, but what we get back in return is way bigger. The seller sees increased conversion,” said Cor. Sander Roose: CEO and Founder of Omnia Retail Joining the panel was our very own CEO Sander Roose who started his keynote speech by making good on a promise. “At the last Price Points Live event, I promised that Omnia would release a new platform sometime in 2023, and the whole Omnia team is proud to have achieved that.” As a veteran in the dynamic pricing industry, with 12 years at the helm of Omnia Retail, Sander brought to the stage what he believes are the pricing elements and design principles of successful dynamic pricing. According to Sander, there are three factors to successful dynamic pricing implementations: Clearly defined objectives; securing engagement and support; and the spirit of continuous learning. “Without clear objectives, you can have a strong pricing platform, but you won’t know how to harness it,” he said. “And as the market changes, you need to be able to change your objectives.” For the second factor, pricing managers and teams need to be fully on board: “If they don’t understand how prices are calculated, they will reject the implementation as a whole.” Then, the third factor speaks to a dynamic pricing user's ability to be agile and curious: “We see that customers that used the system most intensively to make iterations with their prices get the best results.” As a result, Omnia found that two key design principles for dynamic pricing success are necessary: flexibility and transparency. “Being able to automate any pricing strategy you can think of, to facilitate all the objectives, to keep control while the system is on autopilot, and finally, making sure the users are adopting the system.” Flexibility and Transparency A pricing platform needs to be able to support a vast array of pricing objectives and strategies. “A platform needs to be able to endure various high-level objectives. Perhaps on a global level, you have a profit maximisation objective while the strategy on lower levels, such as on a per country basis, may be different,” explained Sander. “For example, if your global brand has just launched in the Netherlands, you may want to maximise market share. Then, even further down, depending on your various verticals, you may want a stock-based strategy.” Flexibility must also be present not just in pricing strategies but in data collection and the recalculation process. Using the example of a Tesla self-driving car with a blacked-out windscreen, Sander makes the point that customers of dynamic pricing still need to be able to see and understand what’s going on - even if the system is on autopilot: “If you create transparency while the system is on autopilot, you can create buy-in from internal stakeholders and facilitate learning loops.” How flexibility and transparency exist in Omnia 2.0 The culmination of these two values resulted in the Pricing Strategy Tree, developed specifically for Omnia 2.0, making strategy building and interpretation easier and faster. “The copy-and-paste feature means a large D2C brand that wants to launch in a new country can simply execute their entire pricing strategy with just a few clicks by copying the strategy in the tree from another country. This is huge for an international customer to be able to do this.” Another feature called Path Tracking allows you to visually see how your strategy came to be, step by step. “This feature helps to validate if you set up the tree how you intended to,” explained Sander. Another feature that elevates transparency is Strategy Branch Statistics which works to answer burning questions from pricing managers: ‘Which part of my strategy is most impactful? The Strategy Branch Statistics feature works to show you which business rules are doing the work to give your prices.’ An additional feature highlighting transparency is the ability to name branches within the tree. The names not only help coworkers understand what you’ve built, but they differentiate the various strategies that are at play at the same time. Strategy Branch Statistics feature works to show you which business rules are doing the work to give your prices.’ An additional feature highlighting transparency is the ability to name branches within the tree. The names not only help coworkers understand what you’ve built, but they differentiate the various strategies that are at play at the same time. AI in pricing “From private label matching, creating automated weekly reports to send to category managers, to automated insights, AI is a powerful technology that has the potential to contribute to the superpowers we offer customers,” says Sander. However, as of today, Sander believes that AI is one part of the machine and should not be considered the holy grail of price setting. “The true need is goal-based pricing,” Sander says.”AI is a means and not an end.” Sander's vision for AI in Omnia’s pricing platform sees a move from granular pricing strategies that affect the business’s objectives to a scenario where the customer sets the objective, and the Omnia platform automates and optimises prices. “We want to move more and more towards goal-based pricing in our platform. We believe the end game for price automation will be rules and AI, not just AI, and the Pricing Strategy Tree allows for a rules and AI combination.” Prof. Hermann Simon: Founder of Simon-Kucher, author As a world-renowned expert in pricing and consulting, Prof. Hermann Simon joins the panel to share what he thinks are the hidden champions in e-commerce and retail and what their successful strategies are. Specifically, the small and midsized global market leaders with a market share of above 50% and that are little known to the public. “In China, which is by the largest global exporter, 68% of the exports come from small and midsized companies, and behind this number are the hidden champions,” says Hermann. “Inside super export performance requires large companies plus a very strong mid sector. Hidden champions, not large corporations, determine whether a country really excels in global competition. Hidden champions are an untapped treasure to learn about business success.” Focus and Globalisation What characterises these companies? “The three pillars of the hidden champion’s strategy are ambition, focus, and globalisation fueled with the tools of innovation, value and price,” shares Hermann. Focusing on your product makes your market small. How does hidden champions enlarge their market? An example of successful globalisation is Karcher, the global leader in high-pressure water hoses, which began internationalisation in the 1970s slowly and then accelerated in the 90s to become the global market share leader at 70%. Other examples include Deichmann, the largest shoe retailer in Europe, which sits in 31 countries across Europe, Africa, the Middle East and the US. “The lesson here is that if you have a good product, multiply it by regional expansion,” says Hermann. Value and Price For successful companies, value comes from innovation and a closeness to the customer. But what drives innovation? The answer is different for hidden champions and the average company. Below is a pie chart where we can see how little an average company prioritises customer needs: What is the most important aspect of pricing? “It’s customer-perceived value. The willingness to pay is a mirror of perceived value, and therefore, value equals price,” explains Hermann. “Understanding, creating and communicating values are the key challenges in pricing.” Using the example of the iPhone, the cost has always been above the market average for a smartphone, yet the success of the product indicates it must obviously bring value to the customer. “Value drives price,” concludes Hermann. According to internal studies at Simon Kucher, only one-third of companies can say they have real pricing power. So, two-thirds are exposed to the sensitivities of the customer. “The result is that value-to-customer and pricing power is created by differentiating your product, changing the way customers perceive your products and your price, and changing the mindset and confidence of your own people in your company,” says Hermann. Closeness to customer “88% of hidden champions say that closeness to the customer is their biggest strength, even more than technology,” says Hermann. Simon-Kucher found that 38% of employees at hidden champion companies had regular contact with customers, while large corporations only had 8%. In retail, it is difficult to understand value perception because there are many competitors selling the same thing. This makes retail’s soft parameters, such as the store layout, service and friendliness, more helpful in understanding value perception. The challenge then becomes how do enterprises effectively communicate their value offering. “Hidden champions are true value leaders with their intense closeness to customers. They achieve a more profound understanding of a customer's needs; their continuous innovations create higher value, and they integrate customer needs and technology much better than the average company.” Gerrie Smits: Speaker and author Gerrie believes we’re getting customer-centricity all wrong. From his 25-plus years of experience in helping companies prioritise customers as well as how to deal with the changing digital world, he has found a common thread of issues: “Technology is getting in the way, companies are seeing customers as a target, and teams are siloing their responsibilities and not wanting to take on other responsibilities,” says Gerrie. “Companies are getting tech just for the sake of it, not because there is any use for it. If you’re going to invest in tech, make sure you have a competitive edge.” According to US business leaders, the number one skill a company needs to have to succeed in the digital world is empathy. “Technology is fantastic if you know what to do with it. My clients are driven by technology, and that’s not customer-centric.” When it comes to companies seeing customers as a target. “I’ve never met a company that doesn’t say they’re customer-centric - obviously,” says Gerrie. But there is a large difference between intent and action. “For example, Amazon has always said they are obsessed with understanding the customer. Yet still, they got it wrong when, in 2022, they reportedly lost $10 billion from dismal sales for their voice-activated Echo. “What brands need to understand is that there is only a small part of me that is your customer. The rest is me as a human being,” says Gerrie. “Seeing your audience as buyers, you are not fulfilling the whole potential.” Concluding Price Points Live 2024 In closing, our panel speakers joined Suyin on stage to answer a round of interesting questions and to share their final thoughts. “To drive loyalty, one must understand what your customers value,” said Natalie, while Doug shared that although pricing is vital to brand loyalty, it is not the only factor. Answering a question about how smaller players in e-commerce can grow and succeed against large enterprises, Natalie says, “It’s like Prof. Hermann said: It’s about focus. You have to know what your strengths are, and then you have to execute really well.” The world of e-commerce is set to make $6.3 billion in global sales in 2024, which is expected to increase to $8 billion in 2027. However, what’s more interesting is the amount of e-commerce users which is set to increase to 3.2 billion by 2029 - a third of the current world population. More shoppers don’t necessarily mean more revenue and sales, so it is safe to say that brands and retailers need to focus their efforts on pricing, innovation, unique marketing and frictionless experiences if they want a segment of the ever-growing pool of e-commerce users. With these insights and go-to strategies for elevating the success of brands and enterprises, Omnia is excited to see what the e-commerce landscape will be for our customers and other growing e-commerce companies. We’d like to thank all of our speakers - Natalie Berg, Dr Doug Mattheus, Prof. Hermann Simon, Gerrie Smit, Cor Verhoeven and our own Sander Roose - and our host, Suyin Aerts, for their knowledge and time spent at Price Points Live 2024. Watch keynote presentations here.
15.02.2024
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.
10.10.2023
The Shape of D2C in 2023: How Established Brands and DNVBs Are Finding Success in E-Commerce
Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the...
Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the consumer’s doorstep. D2C sales models are the perfect pairing: With all middlemen removed, the seller has total control over the customer experience. In 2023, both established brands and digital native vertical brands (DNVB) are pursuing D2C strategies across a huge range of e-commerce verticals. In this article, we’ll highlight three especially interesting and competitive verticals in e-commerce – Electronics, Sports and Home & Living – and look at the current state of D2C businesses within these categories. Trending Verticals in E-commerce Worldwide e-commerce revenue is projected to reach €3.79 trillion in 2023, with the highest-selling verticals being fashion; electronics; and toys, hobby and DIY. Omnia is especially interested in analysing verticals with multiple retailers selling the same or comparable products that consumers research heavily online. These verticals offer significant dynamic pricing opportunities, since price fluctuations are constant and competition is high. Electronics Consumer electronics continues to be one of the reigning e-commerce champion verticals, with sky-high sales over the last decade and further growth as work from home becomes a more established workplace vision for some professions. It is the second-most popular e-commerce category behind fashion, with expected revenue of €839 billion in 2023, or 22.1% of all online sales. Sports Sporting goods are a fast-growing e-commerce vertical, with 43.7% of sports products being bought online. The sports category is an interesting case because of its high Average First Order Value (AFOV). Businesses with high AFOV need to make a profit on every transaction, because repeat purchases are not as common in other verticals. The AFOV for sports businesses is extremely high, but it has one of the lowest levels of 12-month growth in Customer Lifetime Value (CLV). This is especially stark compared to a category like Pets, which has the highest rate of repeat purchases by far. The sports vertical is continuing to grow in the post-pandemic landscape, with businesses in the US, UK and Europe seeing a boost in revenue and traffic in the first quarter of 2023 compared to the end of 2022: US sports businesses achieved nearly 10% in YoY revenue growth The UK and Europe are both still in negative territory for revenue change; about -20% YoY. However, this is a rebound from Europe being about -35% and the UK being about -30% at the end of 2022. Home & living As displayed above, the home category, like the sports vertical, has a high AFOV and a low rate of repeat purchases, sitting at 1.2 for the average first-purchase value. This puts pressure on businesses to achieve sufficient profit margin on each product. Home goods have faced some post-pandemic challenges, as people spent less time at home and less money on home improvement. This vertical has been slower to bounce back than other categories in terms of year-on-year revenue change, but businesses in the UK and Europe did see an improvement in Q1 2023 compared to the end of 2022. However, “improvement” is a relative term, as the YoY revenue change was still between -15% and -20% for the UK and Europe at the start of Q2 2023. Current State and Outlook of D2C in E-commerce Direct-to-consumer (D2C) brands are continuing to grow worldwide, with nearly two-thirds (64%) of consumers making regular purchases directly from brands in 2022. This D2C wave is present in a wide range of markets: in the US, D2C is forecast to grow to $213 billion USD by 2024; in Germany, D2C revenue was already valued at €880 million at the end of 2021; and in India, total D2C sales was $44.6 billion USD in 2021. There are two types of brands that sell D2C: Digital native vertical brands (DNVB): Companies that were born online and have a strong digital presence. These companies often sell niche products directly to consumers through e-commerce platforms and social media, bypassing traditional retail channels. Established, traditional brands: Companies who have built a long-standing presence, reputation and customer base through various channels, including brick-and-mortar retail, advertising and other marketing efforts. These brands may have a strong online presence as well, but their roots are often in traditional manufacturing and distribution. In the US, 40% of established brands are already implementing a D2C growth strategy. It’s a headline-grabbing topic of conversation, but how significant is the role of D2C in the wider e-commerce landscape? D2C sales would account for one in seven e-commerce dollars in 2022. And while DNVBs are often the brands capturing media attention, since they are generally more social media savvy, established brands are projected to account for 75.6% of D2C e-commerce sales in the US in 2023. In fact, the D2C online sales for established brands have had a higher growth rate than DNVBs since 2021, although both types of D2C brands still show strong growth. Challenges for D2C Brands Every operator in the retail space faces its own unique challenges, but D2C brands are a unique case. They retain more control over their customer relationship, products, pricing and supply chain dynamics, but they also hold responsibility for the entire end-to-end experience and whether their product makes it into the hands of consumers. Challenges for D2C brands in e-commerce include: Customer Acquisition Costs: Competition for digital advertising space is high, and as a result, the cost of advertising on social media platforms, search engines and other channels can be quite expensive. This can be especially challenging for D2C startups and small businesses with limited marketing budgets. Supply Chain Management: D2C brands typically manage their own supply chain, which can be complex and time-consuming. From sourcing raw materials to manufacturing and shipping products, there are many moving parts to manage. Delays or disruptions at any point in the supply chain can impact product availability and customer satisfaction. Competition from Established Brands: As mentioned earlier, established brands with existing customer bases and sizable marketing budgets can be formidable competitors for DNVB brands. These brands often have more resources to invest in marketing and customer acquisition, and they may have stronger brand recognition and customer loyalty. Customer Experience and Service: D2C brands are often held to higher standards when it comes to customer experience and service. Customers expect a seamless, personalised experience when shopping online, and any issues with shipping, returns or customer service can lead to negative reviews and damage the brand's reputation. Scaling Operations: As D2C brands grow, they may struggle to scale their operations while maintaining quality and consistency. This can be especially challenging when it comes to managing inventory, production, and shipping logistics. D2C Maturity in Key E-Commerce Categories: Electronics, Sports and Home Let’s return to the three e-commerce verticals we discussed earlier. Each of these has its own level of maturity, as well as successful D2C brands, both established and DNVB. Electronics The consumer electronics vertical is relatively mature when it comes to e-commerce D2C sales. Over the past decade, there has been a significant shift in the way consumers purchase electronics, with many people choosing to buy products directly from brands online rather than through traditional retail channels. Established brand: Apple Apple has long used D2C retail operations to drive customers into its “walled-garden ecosystem”,and has made clear its plans to continue investing in D2C. It’s clearly working: the company was able to triple its market value to $3 trillion between 2018 and 2022. DNVB: Anker Innovations Anker, a Chinese mobile charging brand, is considered a pioneering DNVB. While they also sell via Amazon and other marketplaces, a majority of their sales still come from D2C. Sports The sports vertical has been growing more mature with D2C sales, as has been evidenced by the number of new DNVB brands such as Gymshark as well as established brands taking major steps to ramp up D2C efforts. Nike, for example, announced in 2021 that they would stop selling sneakers at American shoe store chain DSW, another in a long line of breaks with traditional retail. Reports like this are signals that, with Nike as one driver, the sporting goods and apparel sector is developing and maturing quickly, which are changes that retailers will need to adapt to. Established brand: Nike Nike has an established presence in traditional retail channels, but the company’s D2C operation, NIKE Direct, has been extremely successful in both e-commerce and brick-and-mortar. In 2022, it accounted for approximately 42% of the brand’s total revenue. DNVB: Peloton Peloton is one of the most successful examples of sporting DNVBs, having been born online before growing across different distribution channels, customer segments, geographies and categories. Home & Living The home and living vertical, which includes product lines such as furniture, cookware, bedding and more, is a strong D2C market due to its low barriers to entry and lack of strong retail competition. Established brand: Vitra Swiss company Vitra has been operating as a family business for 80 years. The company designs and manufactures designer furniture for use in offices, homes and public spaces. DNVB: Westwing Westwing was founded to be a “curated shoppable magazine”, where consumers could find beautiful home & living products online. The company is now present in 11 European countries and generated €431 million of revenue in 2022. D2C Brands and Dynamic Pricing Aligning prices with retailers for your entire product assortment is no small feat, which is why dynamic pricing software is so essential for brands who utilise a D2C sales channel. As Roger van Engelen, Principal at A.T. Kearney, told Omnia in a 2018 interview: “In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception.” Keep in mind that most major retailers are already using dynamic pricing software for their e-commerce shops and to ensure products are competitively priced. As a brand, your use of Omnia will help you follow a market price even within strict limits.
12.09.2023
Saniweb, one of the first to go live with our new pricing software
Press release Omnia Retail - September 2023 Dutch sanitary equipment retailer Saniweb is among the first to go live with a newly developed pricing software version from Omnia Retail, called Omnia 2.0. The company has...
Press release Omnia Retail - September 2023 Dutch sanitary equipment retailer Saniweb is among the first to go live with a newly developed pricing software version from Omnia Retail, called Omnia 2.0. The company has been developing pricing software for more than 10 years, and Omnia 2.0 marks a revolutionary leap in the development of such software. Saniweb has been using Omnia’s SaaS solution in dynamic pricing for several years, and transitioning to a new application offers benefits for a large business like Saniweb. With Omnia 2.0 providing a large set of features and solutions, both teams are celebrating the achievement of a successful migration. Kevin Gomers, Webshop Manager at Saniweb notes: “For several years now, Saniweb has been working together with Omnia with great satisfaction. However, our business never stands still. In the rapidly changing e-commerce landscape, you expect the utmost from your partners, including in the area of pricing tools. About 2 years ago we got in touch with Omnia’s dedicated Customer Success team, where we provided feedback on capabilities we were still missing for our use cases. They took it upon themselves and earlier this year, they presented Omnia 2.0 to us. It's a platform that allows us to translate our strategies into concrete and understandable pricing rules more easily. It's also a platform that collaborates with us, providing new insights to help us further refine our strategy. With our latest webshop, Saniweb.de, we immediately embraced the platform and quickly transformed our clear vision into a well-defined pricing policy. We are grateful to Omnia for allowing us to participate in this beta version. In addition to our German webshop, we will also be transitioning Saniweb.nl and Saniweb.be this summer." For Omnia this marks a big step, as Saniweb is among the first clients to fully transition to the new application. After merging with German pricing software provider Patagona in late 2021, Omnia was working on merging the two technologies into one new-and-improved application. This best-of-breed platform combines the strength of two pricing tools, topped with new, additional features and an improved user interface to better handle dynamic pricing strategies. Omnia is currently in the process of migrating all accounts to the new application, a process that requires planning, in order to guarantee stability in service delivery for its clients. For this reason Sander Roose, CEO of Omnia Retail notes: “ I am more than happy to see this first of many migrations to our new application being successful. This proves the additional value Omnia 2.0 provides to our clients and that we are capable to ensure a smooth transition for our customers.” In addition the combined company has stacked up its team of experts, in order to provide an even better service in dynamic pricing for retail companies. Dedicated Customer Success Managers and a team of Solution Consultants assist Omina’s clients to define and implement successful dynamic pricing strategies.
25.08.2023
How E-Commerce Brands and Retailers Are Building Trust with Transparent Pricing
Is there such a thing as too much honesty? In business, and in pricing, opinions differ. The concept of transparent pricing refers to having pricing information readily available and accessible to customers, benefiting...
Is there such a thing as too much honesty? In business, and in pricing, opinions differ. The concept of transparent pricing refers to having pricing information readily available and accessible to customers, benefiting both sides: Buyers can make informed decisions, compare prices and avoid overpaying Businesses can improve trust and loyalty from consumers, win more business and avoid angry reviews However, transparent pricing can also have downsides. What if you’re too honest about how you set prices, and customers decide you’re overcharging them? What if competitors use the information to undercut you? In this article, we’ll explore the role of pricing in the overall marketing strategy and how price transparency specifically is used as a messaging signal to build trust. The role of pricing in the marketing mix The original iterations of the Marketing Mix consisted of four P’s: Product, Place, Promotion and Price. Eventually, this expanded to the 7 P’s and added Physical Evidence, People and Process. While each of these areas is important to build a well-rounded marketing strategy, we want to focus today on the role of pricing and how it can be used as a marketing strategy in and of itself. In past articles, we have laid out two main ways in which pricing strategy influences marketing performance: It determines the volume of the marketing budget It influences how effective marketing strategies can be Both of these are certainly true. The price of a product, and its margin, determines how much revenue the company will bring in and how much funding will be allocated to marketing. The price also impacts how customers view a product in comparison to others in the same category, and the price elasticity of that product should be considered when setting a strategy. However, we would argue that we can build upon the second point to see a third way a pricing strategy can impact marketing: as a messaging signal. What if a brand or retailer chooses to be transparent with customers about its own pricing strategy? Regardless of the specific price levels and strategy chosen, what does the act of transparency signal to customers? The question of whether transparent pricing is the right strategy for e-commerce businesses is not black and white, but it is an interesting option to consider. What is price transparency in e-commerce? First, let’s go over how price transparency actually plays out for e-commerce brands and retailers. Transparent pricing can be utilised in a variety of ways: Telling customers about all the factors that determine the final price they pay. This can include the cost of manufacturing, distribution, labour and other costs, as well as things like shipping, import duties and VAT. Showing price history. Historical price transparency typically involves showing customers how the price has changed over time, whether through one-time discounts and offers or increases and decreases of the RRP (Recommended Retail Price). Comparing prices across the market. Some brands and retailers show a live view of the price across other channels, so customers can make an informed decision about where to buy. Avoiding surprise costs. Companies ensure there aren’t any hidden costs that appear at checkout. The customer is aware throughout the process of the price they will pay. Explaining price changes. If the brand or retailer decides to increase or decrease the price on a product, or across their entire product line, they might explain the reason and data behind this price change. This may serve inadvertently as a marketing tactic, as shoppers may think highly of a brand that is open about their price changes, which could increase loyalty and sales. Following price regulations. In May 2022, the EU implemented a new directive aimed at bolstering consumer protection and their overall knowledge of a product’s pricing. The Price Indication Directive (PID) (part of the updated Omnibus Directive) stipulates that when a trader intends on implementing a price reduction on an item, they must also show the item’s previous price. The original price, prior to the reduction, is presented as the most recent and lowest price at least 30 days prior to the newly introduced reduction. Omnia Retail offers the only Dynamic Pricing tool with the ability to use and display the lowest price over the past 30 days, enabling e-commerce sellers to stay in line with the Omnibus Price. Learn more here. Transparent pricing case study: KoRo Drogerie One well-known example of transparent pricing is KoRo Drogerie, a Germany-based online shop selling a variety of long-life, natural and processed foods, plus kitchen utensils and cooking accessories. One of KoRo’s five basic principles is Fair Prices: The KoRo concept can and will only work if we pass on our cost savings resulting from the above principles directly to you. Quality must be affordable. Especially in this day and age, we are aware that it is easy to compare similar products from different suppliers. That is why it is KoRo's goal to be able to offer a fair price-performance ratio for all our products. Every consumer must be able to rely on KoRo to take care of the price comparison process so that customers can be sure that they have chosen the best shopping option. KoRo has had multiple versions of price transparency over the years. In the past, the company actually displayed price development history directly on the website, but this has since stopped – perhaps an example of too much transparency or not enough pay-off to make the labour worth it. Now, KoRo is using price transparency as part of their marketing strategy. The company announces via blogs when prices change for their product lines – whether prices are increasing or decreasing. For example, this blog from February 2021 (in German) announced an average price decrease of 5.34% due to changes in the market and a new calculation basis. Two years later, they announced prices would increase by an average of 8.5% in February 2023 as a result of high food inflation in Germany. This transparency is an effective messaging strategy, showing customers that the company can be trusted to communicate honestly and price fairly. This is consistent with the general perception of KoRo, which is famous in the German market for their fair and sustainable approach. The company receives a 4,78 rating on consumer trust website TrustedShops.de. Transparent pricing case study: Everlane US-based fashion retailer Everlane illustrates another version of price transparency. At the bottom of every product page, the company breaks down the true cost of the production process. The Poplin Summer Dress, for example, has the following cost breakdown: Past iterations of Everlane’s Transparent Pricing infographics actually included the “True Cost”, as well as Everlane’s final price and the traditional retail price. The brand typically uses a markup of 2-3x, whereas traditional retail is closer to 5-6x. It appears that this part of the infographic is no longer included on product pages, indicating that perhaps the brand decided it was too much transparency. Past Everlane pricing infographic - the bottom section is no longer included Putting pricing transparency into practice Any e-commerce business that wishes to utilise transparent pricing needs to have a solid data foundation from which to build its pricing strategy. Those insights can then enable marketers to make smart marketing choices and build the right messaging around pricing transparency – so the business can use it to increase consumer trust. Whether you should use pricing transparency for your business, and which type to choose, depends on your specific situation. It’s a fine balance: You want to increase customer trust, but you also need to earn a profit. And with some consumer protection laws requiring certain levels of transparency, like the PID and others, it isn’t only a commercial question, but a legal one, too. Transparent pricing has to be managed properly, with the right messaging and data, in order to be effective.
22.08.2023
How Established Brands and DNVBs Are Finding Success in E-Commerce
Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the...
Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the consumer’s doorstep. D2C sales models are the perfect pairing: with all middlemen removed, the seller has total control over the customer experience. The only middleman we see is the person delivering our package. In 2023, both established brands and digital native vertical brands (DNVB) are pursuing D2C strategies across a huge range of e-commerce verticals. In this article, we’ll highlight three especially interesting and competitive verticals in e-commerce – Electronics, Sports and Home & Living – and look at the current state of D2C businesses across these areas. Trending Verticals in E-commerce Worldwide e-commerce revenue is projected to reach $4.11 trillion in 2023, with the highest-selling verticals being fashion; electronics; and toys, hobby and DIY. Omnia is especially interested in analysing verticals with multiple retailers selling the same or comparable products that consumers research heavily online. These verticals offer significant dynamic pricing opportunities, since price fluctuations are constant and competition is high. Let’s look at an overview of three verticals that check these boxes. Electronics Consumer electronics continues to be one of the reigning e-commerce champion verticals, with sky-high sales over the last decade and further growth as work from home becomes a more established workplace vision for some professions. It is the second-most popular e-commerce category behind fashion, with expected revenue of $910 billion in 2023, or 22.1% of all online sales. Sports Sporting goods are a fast-growing e-commerce vertical, with 43.7% of sports products being bought online. The sports category is an interesting case, however, because of its high Average First Order Value (AFOV). Businesses with high AFOV need to make a profit on every transaction, because repeat purchases are not as common as other verticals. The AFOV for sports businesses is extremely high, but it has one of the lowest levels of 12-month growth in Customer Lifetime Value (CLV). The sports vertical is continuing to grow in the post-pandemic landscape, with businesses in the US, UK and Europe seeing a boost in revenue and traffic in the first quarter of 2023 compared to the end of 2022. Home & Living As you can see in the chart above, the home category, like the sports vertical, has a high AFOV and a low rate of repeat purchases, putting pressure on businesses to achieve a sufficient profit margin on each product. Home goods have faced some challenges post-pandemic, as people spent less time at home and less money on home improvement. The vertical has been slower to bounce back than other categories in terms of year-on-year revenue change, but businesses in the UK and Europe did see a boost to Q1 2023 revenues compared to the end of 2022. Current State and Outlook of D2C in E-commerce Direct-to-consumer (D2C) brands are continuing to grow worldwide, with nearly two-thirds (64%) of consumers making regular purchases directly from brands in 2022. This D2C wave is present in a wide range of markets: in the US, D2C is forecast to grow to $213 billion USD by 2024; in Germany, D2C revenue was already valued at €880 million at the end of 2021; and in India, total D2C sales was $44.6 billion USD in 2021. There are two types of brands that sell D2C: Digital native vertical brands (DNVB) – Companies that were born online and have a strong digital presence. These companies often sell niche products directly to consumers through e-commerce platforms and social media, bypassing traditional retail channels. Established brands – Companies who have built an established presence, reputation and customer base through various channels, including traditional retail, advertising and other marketing efforts. These brands may have a strong online presence as well, but their roots are often in traditional manufacturing and distribution. In the US, 40% of established brands are already implementing a D2C growth strategy. It’s a headline-grabbing topic of conversation, but how significant is the role of D2C in the wider e-commerce landscape? Estimates from Insider Intelligence said that D2C sales would account for 1 in 7 e-commerce dollars in 2022. And while DNVBs are often the brands capturing media attention, established brands are projected to account for 75.6% of D2C e-commerce sales in the US in 2023. In fact, the D2C online sales for established brands have had a higher growth rate than DNVBs since 2021, although both types of D2C brands still show strong growth. Challenges for D2C Brands Every operator in the retail space faces its own unique challenges, but D2C brands are a unique case. They retain more control over their customer relationship, products, pricing and supply chain dynamics, but they also hold responsibility for the entire end-to-end experience and whether their product makes it into the hands of consumers. Challenges for D2C brands in e-commerce include: Customer Acquisition Costs: Competition for digital advertising space is high, and as a result, the cost of advertising on social media platforms, search engines and other channels can be quite expensive. This can be especially challenging for D2C startups and small businesses with limited marketing budgets. Supply Chain Management: D2C brands typically manage their own supply chain, which can be complex and time-consuming. From sourcing raw materials to manufacturing and shipping products, there are many moving parts to manage. Delays or disruptions at any point in the supply chain can impact product availability and customer satisfaction. Competition from Established Brands: As mentioned earlier, established brands with existing customer bases and sizable marketing budgets can be formidable competitors for DNVB brands. These brands often have more resources to invest in marketing and customer acquisition, and they may have stronger brand recognition and customer loyalty. Customer Experience and Service: D2C brands are often held to higher standards when it comes to customer experience and service. Customers expect a seamless, personalised experience when shopping online, and any issues with shipping, returns or customer service can lead to negative reviews and damage the brand's reputation. Scaling Operations: As D2C brands grow, they may struggle to scale their operations while maintaining quality and consistency. This can be especially challenging when it comes to managing inventory, production, and shipping logistics. D2C Maturity in Key E-Commerce Categories: Electronics, Sports and Home Let’s return to the three e-commerce verticals we discussed earlier. Each of these has its own level of maturity, as well as successful D2C brands, both established and DNVB. Electronics The consumer electronics vertical is relatively mature when it comes to e-commerce D2C sales. Over the past decade, there has been a significant shift in the way consumers purchase electronics, with many people choosing to buy products directly from brands online rather than through traditional retail channels. Established brand: Apple Apple has long used D2C retail operations to drive customers into its “walled-garden ecosystem,” and has made clear its plans to continue investing in D2C. It’s clearly working: the company was able to triple its market value to $3 trillion between 2018 and 2022. DNVB: Anker Innovations Anker, a Chinese mobile charging brand, is considered a pioneering DNVB. While they also sell via Amazon and other marketplaces, a majority of their sales still come from D2C. Sports The sports vertical has been growing more mature with D2C sales, as has been evidenced by the number of new DNVB brands as well as established brands taking major steps to ramp up D2C efforts. Nike, for example, announced in 2021 that they would stop selling sneakers at American shoe store chain DSW, another in a long line of breaks with traditional retail. News stories like these are signals that, with Nike as one driver, the sporting sector is developing and maturing quickly, changes that retailers will need to adapt to. Established brand: Nike Nike has an established presence in traditional retail channels, but the company’s D2C operation, NIKE Direct, has been extremely successful in both e-commerce and brick-and-mortar. In 2022, it accounted for approximately 42% of the brand’s total revenue. DNVB: Peloton Peloton is one of the most successful examples of sporting DNVBs, having been born online before growing across different distribution channels, customer segments, geographies and categories. Home & Living The home and living vertical, which includes product lines such as furniture, cookware, bedding and more, is a strong D2C market due to its low barriers to entry and lack of strong retail competition. Established brand: Ikea Ikea has always been a direct-to-consumer brand, but is not a DNVB due to its brick-and-mortar origins. In the wake of the pandemic, Ikea’s online channels had more than 5 billion visitors and an increase of 73% in e-commerce sales during FY 2021. DNVB: Westwing Westwing was founded to be a “curated shoppable magazine”, where consumers could find beautiful home & living products online. The company is now present in 11 European countries and generated €431 million of revenue in 2022. D2C Brands and Dynamic Pricing Aligning prices with retailers for your entire product assortment is no small feat, which is why dynamic pricing software is so essential for brands who utilise a D2C sales channel. As Roger van Engelen, Principal at A.T. Kearney, told Omnia in a 2018 interview: “In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception.” Keep in mind that most major retailers are already using dynamic pricing software for their e-commerce shops and to ensure products are competitively priced. As a brand, the software can help you follow a market price even within strict limits. No one wants a market-wide price race to the bottom, or to anger retailer partners. To stay better aligned with your partners and pricing strategy, and to start gathering better data on your shoppers, try Omnia Dynamic Pricing free for two weeks.
25.05.2023
How vendor ratings influence consumer behaviour in e-commerce
Picture this: It’s the 1980s. The Iron Curtain hasn’t fallen yet. Hairstyles are big, and punk culture is bigger. There’s no internet yet available to the public. You want to buy something new – maybe a bigger...
Picture this: It’s the 1980s. The Iron Curtain hasn’t fallen yet. Hairstyles are big, and punk culture is bigger. There’s no internet yet available to the public. You want to buy something new – maybe a bigger television to watch all those new cable channels like MTV that everyone is talking about. How do you choose which TV to buy? At the time, you would likely have asked around, collected opinions from family and friends; maybe gone down to the local electronics store to ask the staff for help. There wouldn’t yet be a way for you to instantly compare every television brand on Earth and see what other buyers had to say about them. To younger consumers in the 2020s, this is hard to imagine. Seemingly every website that offers something for sale these days has some type of rating or review system to help you gauge the quality, credibility and price-to-value ratio of any vendor. These ratings influence our behaviour in countless ways, big and small. Today, Omnia is exploring the background of vendor ratings, how much weight they carry among consumers, the impact for D2C brands and more. An overview of vendor ratings, then and now If all consumers knew exactly what they wanted and bought directly from each brand’s D2C shop; if there were no middlemen or comparison tools, then vendor ratings might never have been necessary. But because the e-commerce landscape contains so many brands and retailers, between 12 - 24 million globally, it makes sense that consumers would want ways to compare the different offerings and sellers available to them online. The first online reviews started to pop up around 1999, mostly on sites like eBay. Eventually, there were three main sources where consumers could go specifically for reviews: RateItAll, Epinions, and Deja. Over time, there were further iterations, from Yelp and Facebook to marketplaces like Google and Amazon. The platforms using vendor ratings Marketplaces and comparison shopping engines (CSEs) are both used by consumers around the world to find and compare products and shop online. One survey found that more than 8 in 10 shoppers in the US make purchases on marketplaces at least monthly, while 35% buy on marketplaces at least once per week. Both marketplaces and CSEs connect buyers with sellers, with CSEs having the added role of helping shoppers compare vendors, products and their prices side by side. Along with marketplaces and CSEs, other pure review sites like Trusted Shops and Trustpilot are also popular platforms among consumers. Vendors with high ratings on these sites will often display the badges proudly on their website to demonstrate their credibility. One of the most influential similarities between marketplaces and CSEs are the ratings and reviews, which play a huge role in how consumers choose which vendor to buy from or which product to choose. Along with looking at the price, consumers will consider questions such as: How many ratings/reviews does each competitor have? How high is the vendor’s average rating? Which of the vendors I’m considering has the highest rating or most reviews? How much weight does a review have on consumer decisions? For vendors, the modern day rating or review is a form of word-of-mouth advertising, a name that comes from those friends and family recommendations you might have relied more heavily on before the Internet. Vendors who have earned a positive rating from past buyers are more likely to attract new consumers compared to those with a low rating or very few reviews. From the consumer side, the importance of vendor ratings and reviews, and how they impact purchase decisions, is well-documented: More than 99.9% of consumers read reviews when shopping online On a five-star rating scale, 3.3 stars is the lowest rating customers are likely to consider 96% of customers specifically look for negative reviews 49% of consumers worldwide say positive reviews are one of their top three influences for purchasing a product 91% of younger shoppers age 18 to 34 trust online reviews as much as personal recommendations Importance of reviews by generation The difference in impact of reviews on consumers of different generations is especially interesting. For example, let’s look at review recency: Nearly all consumers (97%) think the recency of reviews is at least somewhat important. Across all ages, many consumers also value the quantity of reviews, but 64% would choose recency if they had to pick between the two. Here’s how that choice differed across generations: The impact of reviews when shopping for costlier products showcases an even wider divide between older and younger consumers. When asked in the same survey if they read more reviews for expensive products, respondents said the following: How relevant are vendor ratings for D2C? Although they sell their products directly to buyers via their online storefronts, D2C brands are not exempt from the importance of ratings. Many also sell on marketplaces and most will have a presence on CSEs, so their ratings will be important and consumers will still want to compare similar products across different brands. Product reviews of comparable products from competitor brands may also have increased importance for D2C. The importance of reviews for different product categories There are also differences in rating impact depending on the product category. According to PowerReviews, electronics is the top product category for review consumption, while consumers purchasing categories like toys, groceries, and babycare rely less on reviews. Source: Power Reviews 2023 Prioritise fixing your ratings first Beyond all of the data points listed above that show the importance of vendor ratings, they also play a role in pricing strategy. However, it’s worth noting that a vendor with bad ratings should first work on fixing those ratings and increasing their quality before focusing on price optimisation. For vendors who have achieved positive ratings and are working on pricing strategies, you can use other vendors’ ratings to optimise pricing across channels. For example, you may not want your pricing software to automatically adjust your price to the cheapest offer on the market; instead, you want it to take into account the offers that are competitive on price and also come from a vendor with sufficient ratings. That way, you avoid a race to the bottom with competitors who aren’t actually at your level. Many vendors wonder how many reviews are needed to make a real impact on sales. There is no magic number; however, the data shows that even one review makes a difference. PowerReviews analysed more than 1.5 million e-commerce product pages on 1,200 vendor sites (brands and retailers) and discovered that when page visitors were shown anywhere from one to 100 reviews, there was a 76.7% lift in conversion compared to those who were shown zero reviews. Vendors with even more reviews saw even bigger increases in conversion: Source: Power Reviews 2023 As for how the average rating itself affects conversion rate, it’s no surprise that as the rating of a product increases, the conversion rate increases as well. Products in the band of 4.75 – 4.99 stars have the highest conversion rates on average. Interestingly, conversion rates drop significantly for 5-star rated products, down to about the same level as products which receive ratings of 3.00 - 3.49. This is because 46% of consumers generally don’t trust 5-star ratings, including 53% of Gen Z shoppers. Source: E-Commerce Fastlane To experience Omnia Dynamic Pricing, which allows you to automate any pricing strategy efficiently and at scale, set up a demo here.
05.05.2023
Comparison shopping engines: How to optimise your presence
We live in a world of endless choice, and while the number of options can be exciting for shoppers, it can also be overwhelming. Comparison shopping engines (CSEs) have emerged as a valuable tool for shoppers to make...
We live in a world of endless choice, and while the number of options can be exciting for shoppers, it can also be overwhelming. Comparison shopping engines (CSEs) have emerged as a valuable tool for shoppers to make informed purchase decisions and for e-commerce brands and retailers to increase online visibility and sales. But CSEs are not all the same; some, like Google Shopping, are huge generalist sites covering any product you can think of, while others are vertical shopping sites focused on specific categories. The most popular sites also vary by country, and each population uses them differently. In this post, Omnia discusses what consumers use comparison shopping engines for, the top sites by country, some benefits and challenges of selling on CSEs, and what we expect to see in the future. Consumers use comparison shopping engines to reduce choice overwhelm and find the best price As our global economy continues to accelerate, consumers are faced with an increasing number of choices and opportunities. This means that many consumers are overwhelmed by too many offers that they have difficulty evaluating. This is how CSEs first appeared in the 1990s: influential digital institutions wanted to create a solution that would keep internet users in contact with available products, assisting the shopper in making a purchase while reducing confusion and overwhelm. Comparison shopping engines have now become a significant piece of the tool belt for e-commerce businesses looking to increase their online visibility and boost sales by going head-to-head against the competition. CSEs allow customers to quickly view different products from multiple vendors, compare features and prices, and make informed decisions about what to buy. CSEs are often some of the highest ranking websites in their respective regions, and for brands and retailers selling on CSEs, the sites can increase visibility among shoppers who may not have otherwise found the business or products through other marketing methods. With Google, for example, Google Shopping results and ads appear either above the search results or on the right side of the page, guaranteeing users will see the products first. What consumers want out of a CSE One study cited in the International Journal of Advanced Computer Science and Applications asked respondents to define which characteristics of a CSE would determine its quality: 81% wanted the CSE to find a lower price offer 80.2% wanted the CSE to be easy to use 76.8% wanted the CSE to be accurate in finding the right offer 70.2% wanted to have access to additional information about the offer and/or supplier 58.7% wanted the CSE to also have ratings, comments, and evaluations from other buyers That first statistic is consistent with other studies and the conventional wisdom that CSEs are used first and foremost to find the best price, which makes sense considering that they are also referred to as “price comparison websites” CSEs are used across the world, but the most popular sites and categories vary No matter the country, there are shoppers looking for the best deal, so CSEs have a worldwide presence. Some of the most popular CSEs in European markets include: How CSEs are used varies by location, age group, income level, and other factors. In a study in the UK, for example, shoppers in the 35-44 age range were the most likely group to have used a price comparison website, with 75% saying they had shopped on a CSE before. Source: Statista CSE comparison: Google Shopping and Amazon Google’s CSE arm is Google Shopping, and it’s one of the biggest comparison sites worldwide. Users shop across the platform more than 1 billion times per day, with 36% of all product searches originating on the site. Meanwhile, 49% of all product searches originate on Amazon, which has more than 1.7 million sellers for shoppers to compare. There is a key difference between the two, however, since Amazon is a marketplace. While marketplaces may include some comparison features, such as filters and sorting options, they are not primarily designed to be comparison engines. Amazon has a vested interest in getting customers to the checkout button or, even better, buying their own branded products on the site. Google sees its role differently: In 2021, Google Commerce President Bill Ready said the following on a podcast: “We’re not a retailer, we’re not a marketplace… What we do want to do is make sure that on a Google surface, the user can discover the best products, the best values, the best sellers, and then seamlessly connect to those sellers. Most of the time, that actually means clicking out to that seller’s own website; it is not our goal to necessarily keep the user on our platform.” This is interesting to note for brands and retailers selling on either site, and other CSEs in general, as it indicates the key differences between the goals of the platforms themselves. While any CSE will still monetise the process through ads, transaction fees, or other channels, some such as Google may not take on as much of the responsibility of getting the shopper all the way to the purchase point. Because of this, Google Shopping may be a unique case that does not fit perfectly into either the marketplace or CSE bucket. Benefits and challenges of selling on CSEs While each comparison shopping engine comes with its own pros and cons for brands and retailers, some of the key benefits and challenges to consider are consistent across platforms: Benefits: Expanded visibility: Listing products on CSEs enables retailers and brands to increase their visibility to potential customers who are actively searching for products. Improved conversion rates: CSEs often attract customers who are further along in the purchase process, meaning that they are more likely to convert into buyers. Increased sales: As a result of the increased visibility and improved conversion rates, retailers and brands may see an increase in sales. Cost-effective advertising: Unlike other forms of advertising, CSEs often operate on a cost-per-click (CPC) model, which means that retailers and brands only pay when someone clicks on their listing. Challenges: Increased competition: CSEs are highly competitive marketplaces, with many retailers and brands vying for the attention of shoppers. If some competitors with the same product offer are out of stock, have fewer or worse reviews, or have different delivery options, then the ones leading in these areas can win the best position on the CSE. Those products will be more likely to be chosen by consumers who care about the quality and trustworthiness of the offer. Cost: While CSEs can be cost-effective, the CPC model can quickly add up, especially for smaller retailers and brands with limited marketing budgets. Product data management: Retailers and brands must provide accurate and up-to-date product data to CSEs, including pricing, availability, delivery options and product descriptions. This can be time-consuming and requires ongoing maintenance. Limited control: CSEs can have their own guidelines around product data, and retailers and brands may have limited control over how their products are presented on the platform. One interesting factor that can be both a benefit and a challenge is consumer trust, as it is dependent on the reputation of the specific CSE in general or in a particular market. In the UK, for example, a government study found that while most consumers trusted CSEs at least a fair amount across most measures, trust levels were much lower in two key areas: Half of consumers did not trust CSEs to ensure data is not shared with third parties without permission Four in ten did not trust CSEs to treat all suppliers equally On the other hand, some comparison sites have built up a high level of trust in their markets. Check24, for example, has been operating since 1999 and is highly trusted in Germany. Price is not the only competition factor on CSEs While price is the determining factor of a product’s visibility on a comparison search engine, vendors will not only compete on who has the cheapest price. As we explored earlier, there are other factors that influence the quality and trustworthiness of an offer for consumers. When developing pricing for CSEs, sellers should consider the following factors in their strategies: 1) Filters Sellers should filter who they would like to compare product offers with and who they will adjust prices in relation to. Not every competitor will be as important to each seller; for example, even if a seller has a very competitive price, if they are a small retailer or a newcomer with an unknown name and no reviews, they won’t appear to be as trustworthy to a consumer compared to a well-known retailer the consumer trusts for fast and secure delivery. The seller may want to skip adjusting prices to these companies. 2) Market knowledge It’s important for sellers to know their market and differentiate pricing strategies between assortments and categories. For example, if you sell sporting t-shirts and sporting shoes, each market and product may have a different set of competitors, so a market analysis will be a crucial starting point. 3) Timing of price adjustments If you adjust your prices in the morning at 8am and your competitor(s) adjust theirs at 9am, then your offer will already be outdated after an hour. You can learn this through market observation, which is made simpler with Omnia’s data. 4) Price elasticity Price elasticity tends to be quite high on CSEs, so be aware and, if possible, analyse data for the platform to build the right pricing strategy for your products. Omnia has a feature in place to calculate price elasticity, as well as a process for elasticity accuracy in our software. 5) Seasonality Any seasonal factors that impact your product assortment should be taken into account when setting a pricing strategy. Special sales events like Black Friday will start with a pricing strategy weeks before, while also seeing increased competition. The same goes for Christmas shopping, when sellers need to keep delivery dates in mind for shoppers who want their products by Christmas eve, and how prices might change along with this. Seasonality shapes consumer behaviour and shopping needs throughout the year, so it is a good idea to have important dates and periods prepared for the whole assortment. 6) Channel alignment Aligning the offers you provide on the CSE with all other sales channels will be important for consistency. Considering the specific conditions of each marketplace and CSE in price calculations will lead to different prices. However, having automation and an overall pricing strategy, with rules such as rounding to a particular digit, will help properly represent the vendor in the market and easily master all different channels. The future of comparison shopping: Where do CSEs go next? With the world of e-commerce changing so rapidly, what can we expect of comparison shopping in the future? Increased use of AI and Machine Learning: Comparison shopping engines will increasingly leverage artificial intelligence (AI) and Machine Learning to provide more personalised and targeted search results to shoppers. This will result in more accurate product recommendations and better user experiences. Deeper integration with social media: Comparison shopping engines may integrate more deeply with social media platforms such as Instagram and TikTok to allow shoppers to make purchases directly from these platforms. This could result in an increase in impulse purchases and a greater focus on social media marketing for retailers. More focus on the changing customer experience: CSEs will need to continually adapt to provide a seamless, up-to-date customer experience. This could include developing mobile-specific features and interfaces, such as voice-activated search and augmented reality shopping, as well as loyalty programs or new payment models. Shifting competition: CSEs will face new types of competition as brands and retailers rethink their own selling models. Will more brands choose to sell D2C? Will retailers use their own experience selling branded products on marketplaces to produce their own labels? As costs rise amid inflation and other world events, retailers and brands will look for alternatives to increase profits, which may create competition for marketplaces from new angles. Greater emphasis on sustainability: As consumers become more environmentally conscious, comparison shopping engines may need to emphasise sustainability in their search results. This could include highlighting products with eco-friendly certifications or partnering with brands that prioritise sustainability. Growing regulatory attention: Comparison shopping engines may face increased scrutiny from governments, particularly in the areas of data privacy and antitrust. This could result in greater transparency requirements for the engines and stricter rules around data collection and use.
28.04.2023
Pricing: An approach to prosperous business development
Isn’t it a scary thought that 75% of S&P 500 incumbents will no longer be listed on the index by 2027? Due to slow or nonexistent evolvement, Standard & Poor’s data show that the evolution of corporate success has been...
Isn’t it a scary thought that 75% of S&P 500 incumbents will no longer be listed on the index by 2027? Due to slow or nonexistent evolvement, Standard & Poor’s data show that the evolution of corporate success has been dwindling for more than 50 years, stipulating that the average lifetime of an enterprise has decreased from 61 years in 1958 to just 18 years in 2011. Adaption and evolution are pertinent to the success of any enterprise, and no case of this being true is larger than the digitization of shopping. From malls to iPhones, the development of e-commerce has been the funnel for the start and the end for countless brands and retailers. As e-commerce experiences its largest growth spurt in the last three years since 2020, creating the most competitive landscape the industry has ever faced, one factor for e-commerce success has remained strong and true: Price is the number-one profit driver. As correctly stated by Prof. Hermann Simon, the world’s leading expert on pricing and the founder of Simon-Kucher & Partners, just a 1% increase in prices can yield up to 10% in profit. In this article, Omnia will discuss the importance of pricing for an enterprise’s long-term success and will display why a pricing strategy, coupled with a pricing software solution, is simply smart business development. In inflationary times, pricing is the cornerstone for enterprise success For decades, as one of the 7 P’s of marketing - a basic blueprint for retail and brand owners to launch successful products - pricing took a comfortable middle-child spot without enough attention being paid to it. The impressive and explosive trajectory of e-commerce in the last five to ten years has changed that. However, it isn’t just the growth of e-commerce that has directed the light onto pricing, but the very nature of its competitiveness and oversaturation. Consumers have become king, experiencing more options to shop and more capabilities to compare. The retailer no longer enjoys the peace of mind of knowing the consumer has to come to them - quite the opposite. As the balance of power shifted to the consumer, brands and retailers began rubbing their hands together to strategise on how they can capture the customer once more. As the other P’s (product, place, people, process, promotion and physical evidence) became less prominent as shopping moved to a web shop, pricing has become the top factor for consumers when choosing or abandoning a particular brand or retailer. In 2023, following the effects of covid lockdowns, supply chain issues and record-high inflation, pricing is more influential than ever: McKinsey reports that price is at the top of the list of consumers’ motivations to change their spending behaviours. US consumers are switching brands and retailers now more than they did in 2020 and 2021 (33% versus 46%). Furthermore, in PwC’s 2023 Global Consumer Insights survey, 96% of consumers said they intend to adopt cost-saving behaviours over the next six months and 69% have already amended spending on non-essential items. With price becoming so pertinent to consumer spending decisions in inflationary times, it becomes that much more vital for brands and retailers in e-commerce to stay ahead of market changes and conditions while driving revenue and profit upwards. On the other end of the spectrum, it’s not simply consumer buying behaviour that has propelled the importance of price: If one analyses the last decade of e-commerce, it is the powerful monopoly of marketplaces like Amazon, Google Shopping, Zalando and eBay, as well as large D2C online stores, that have developed a sense of control and manipulation of pricing in multiple categories. From electronics to personal care and everything in between, vendors and D2C small-to-medium businesses (SMBs) are contending with lower prices on these giant platforms that they feel pressured to meet or beat. And, without expertise and the right tools, how can they? Amazon has 1.9 million SMBs worldwide as third-party sellers on its marketplace, and owns a 38% majority of the US’s e-commerce market share, showing just how influential one marketplace could be over the pricing of multiple categories. It then becomes imperative that enterprises have access to scraping data and robust pricing rules and technology to remain competitive in an industry largely dominated by marketplaces. Mobilising pricing power Considering how competitive and concentrated the e-commerce arena has become, with marketplaces like Amazon and Google Shopping dominating market conditions, while the D2C stream increases by double digits, how does an enterprise create a forward-thinking, data-driven pricing strategy? How does an enterprise know when to action that 1% price increase so fondly spoken of by Prof. Simon? A Bain & Company global study shows that of the 1,700 retail leaders surveyed, 85% say management teams need to make smarter pricing decisions and only 15% believe they have effective price monitoring tools. The gap is considerable. However, as a McKinsey study suggests, incorporating AI-based pricing into retail pricing and promotion can add a valuable Dollar impact of between $106 million - $212 million, which may go a long way in easing the frustrations of the aforementioned business leaders, as well as their margins. In addition, Boston Consulting Group (BCG) shared in a study of theirs that it may take as little as three months to see up to a 5% increase in profit by implementing optimised pricing. As Prof. Simon also said, “Profits are the cost of survival and the creators of new value,” but, are retail leaders ready to maximise this value that’s right in front of them for their brand and their customers? According to the same Bain & Company study, implementing “new pricing capabilities” can increase the average profit by between 200 - 600 basis points: The crux of mobilising pricing power is knowing that it is not a once-off solution to fixing dismal profit margins, high sales team turnover and waning customer loyalty. Leadership needs to view pricing as the relationship is cannot get out of - and that’s a good thing. Developing pricing muscle and pricing maturity is a multi-year journey with an investment in data, automated processes and talent. Building longevity in value When one thinks about the kind of brain power, talent, hard work and almost indispensability a company may possess to reach the S&P 500 list, it seems inconceivable that a concept as elusive as adaption and evolvement could be its downfall. This goes to show how a simple mindset shift could be the deciding factor of stagnation and dissolution or growth and profitability. McKinsey shares that digitization “has less to do with technology and more with how companies approach development” and that when well executed, “it can unlock significant value by compressing timelines and eliminating duplication or inefficiencies.” As e-commerce technology advances and becomes more intelligent, it is unthinkable that one of the most critical and unpredictable factors - pricing - is not maintained manually. However, not only is the automation of pricing informed by competitor data and market insights necessary to demonstrably meet commercial goals, it is the partner in pricing, not just the software, that is needed.
23.01.2023
What is Price Skimming?
Price skimming is a pricing strategy that can facilitate a higher return on early investments, influence the branding and appeal of a product, and allow a brand to target specific segments of a given market. Brands use...
Price skimming is a pricing strategy that can facilitate a higher return on early investments, influence the branding and appeal of a product, and allow a brand to target specific segments of a given market. Brands use price skimming to optimize revenue and margin across the lifecycle of a product, skimming off market segments. Furthermore, it helps maintain a better ROI regarding research and product development. Customers who are most loyal or seek premium products are more likely to pay top price. The subsequent skimming allows lower price points to attract the rest of the market. In this guide, you’ll learn: What is price skimming? Price skimming strategy Price skimming vs penetration pricing What are the advantages and disadvantages of price skimming? Ways to compete against predatory pricing and gain e-commerce sales What is Price Skimming? Price skimming is a pricing strategy often related to innovative and high-demand products. Brands set a high price ceiling for new products due to market analysis and consumer demand. The top layer of loyal customers buy at high prices. A retailer then pivots to accommodate new layers of consumers by slowly lowering the price over time. Retailers continue in skimming pricing until it levels-off at a base price. Retailers initially set prices high due to demand and then slowly “skim” the price down as the novelty of the product decreases and accessibility to it increases. Samsung uses price skimming strategy in regards to its mobile phones. When customer demand is high due to a new release, the price is set to attract the most revenue. After the initial fervor and hype wanes, Samsung adjusts price points to suit more consumers in the market. Samsung initially leverages price skimming to take market attention and share away from their main rivals. For example their Galaxy phones were priced to take share away from the iPhone. Price Skimming Strategy Price skimming involves targeting top-level consumers, those who buy at premium prices. Lowering price ensures a brand aligns price points with more customers. Nike, a serial manufacturer and retailer of shoes and clothing, applies price skimming to popular trainer releases. This is done by charging premium prices for new products and limited releases. Brand’s at the top of their market like Nike, have no trouble setting prices high. High prices are warranted by the demand for its trainers and loyalty to the Nike brand. Months after a release, Nike lowers prices to accommodate more layers or subsets of customers, those who are more willing to buy the product at a sales price. The dynamic between online and offline sales adds another layer of strategy. Retailers need to align in-store and online prices, for the Ropo Effect (research online buy offline) may increase in-store sales. Price Skimming vs Penetration Pricing Successful retailers remain agile regarding pricing strategy, for setting prices low or high can be fortuitous. Price skimming and penetration pricing differ in application despite being equally useful. Penetration pricing involves setting a lower price point as compared to market competitors. It allows a brand to gain exposure in a crowded market, quickly gaining market share via consumers looking for sales prices. Penetration pricing also helps attract new users, introduces brands to a market, competes with market leaders, and helps in acquiring market share. Often, the strategy is paired with price monitoring software for optimal timing and performance. Related Reading: Why Price Is the Most Important P Price Skimming Advantages 1 - Supply and Demand & ROI Premier products necessitate preparation and early investment. High price points in combination with low supply, for example the introduction of the PS5, helps recuperate earlier investments and ensures an overall better ROI. As the products availability increases over time you would then expect to see the price decrease as the demand decreases. For example, Apple invests a lot of money into technology and research. That warrants the premium pricing of its iPhones. The high prices akin to price skimming allows Apple to reinvest the higher return on investments back into the brand, which helps strengthen its branding. 2 - Brand Image “Sneakerheads” may pay more than 10x the retail price for a pair of popular trainers. Ownership equals prestige, novelty, and limited accessibility to them. Price skimming inspires consumer feelings and behavior that sculpts a brand’s image. The Adidas brand’s Predator football boot has gone through many iterations over the years due to its popularity. The soccer boot was first introduced in 1994. Last year, Adidas released the Predator 20. 3 - Market Analysis Retailers celebrate price skimming because it segments customers for deeper market analysis. Skimming allows marketers to segment customers into groups. Analysing what percentage of a given market paid premium prices is useful information to use for future products and pricing strategy. At the moment, Sony may consider price skimming in regards to its PlayStation 5. Early adopters and brand fanatics gladly paid premier prices for Sony’s newest release. However, data reflects a trend. Sony lowered the price of its previous PlayStation products over time. Sony sold more PlayStation 4 consoles in the third and fourth year after its release than the first two years on the market. It’s likely that Sony, observing a rising trend in gaming combined with its previous sales data of PlayStation consoles, initiated a price skimming strategy. (Source: https://camelcamelcamel.com/PlayStation-4-Console/product/B00BGA9WK2) Related Reading: Amazon Success Strategies 4 - Pricing Strategy Price skimming is an element of a larger pricing strategy. Some brands leverage price skimming for ROI and market analysis, but skimming price can be beneficial as a way to further inform a brand’s broader price strategy. For example, Nike had very modest sales goals in mind upon releasing the very first Air Jordan trainers. At the time, a “sneakerhead” or the thought of paying hundreds of dollars for a pair of trainers were nonexistent. The subsequent cycle of setting premium prices for new releases followed by loyal customer purchases created Nike’s brand mystique. Price Skimming Disadvantages 1 - Pricing Objectives Price skimming recuperates early investments and creates a mystique around a product or brand. But, it can potentially alienate early adopters too. Emotional appeal can help or hinder a brand. Lowering the price of a previously high-priced item may irritate early adopters. The lowered price affects early adopters, and it also means that more people are likely to own a product. That lessens its sense of prestige and exclusivity. Consider long and short-term goals along with possible reactions from loyal customers. In 2007, the price of that year’s must-have gadget, the iPhone, was lowered from $599 to $399. This enraged early adopters to the point that Steve Jobs had to make a public apology and offered $100 Apple store credit to any iPhone owner who felt “cheated.” Related Reading: How to Build a Pricing Strategy 2 - Reality Check Price skimming is an incredible pricing strategy available to those offering high-demand products. Luxury brands, like Gucci and Louis Vuitton, command high prices for its highly sought clothing and accessories. These brands are at an advantage in having more leverage in setting high prices that rarely come down. A major disadvantage of price skimming is that many brands don’t have the ability to implement it. However, Dynamic Pricing software delivers the data to make real-time pricing decisions a lot easier. 3 - Relative Competition The decision to wage price skimming is often relative to a retailer’s competition. Setting prices high can inspire customers to buy from competitors. Price changes rarely go unnoticed by the competition! Consider launch prices related to Xbox and Playstation products: Annually, Xbox and PlayStation are compared. And, price is always a main focus. Any pricing maneuver from Sony is sure to be closely monitored and countered by Microsoft (and vice versa) for years to come. Utilizing retail tools, such as Pricewatch, enables you to get real-time data pulled from a competitor’s website as well as shopping search engines. Conclusion Price skimming is another tool retailers leverage to gain market share and crush competitors. Used in combination with sophisticated pricing software, skimming prices can be tremendously advantageous. Recover a greater return on initial investment, position products to attract premier buyers, gain greater awareness regarding customer segmentation, and use data to inform future pricing strategies. Curious to learn about some other pricing strategies? Check out some of our other articles below. What is Value Based Pricing?: A full overview of how price and consumer perception works together. What is Charm Pricing?: A short introduction to a fun pricing method What is Penetration Pricing?: A guide on how to get noticed when first entering a new market What is Odd Even Pricing?: An explanation of the psychology behind different numbers in a price. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. Here’s What You Need to Know About Psychological Pricing (Plus 3 Strategies to Help You Succeed): Modern day pricing is so much more than a numbers game. When thought about correctly, it’s a powerful way to build your brand and drive more profits. How to Build a Pricing Strategy: A complete guide on how to build a pricing strategy from Omnia partner Johan Maessen, owner of Commercieel Verbeteren.
28.09.2022
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.
25.08.2022
How we collect vital data for our customers (Part 2)
In recent years, data has surpassed oil in being the most valuable commodity on Earth. In just the four years between 2016 - 2020, the data market in the US grew in value from €129 billion to €211 billion. In a...
In recent years, data has surpassed oil in being the most valuable commodity on Earth. In just the four years between 2016 - 2020, the data market in the US grew in value from €129 billion to €211 billion. In a nutshell, data is how we understand something on an intricate level without bias and subjectivity, and within the world of e-commerce and retail, it is the cog in the machine that’s indispensable. In this four-part series, Omnia shares the process a potential customer will enter into once they decide to choose our pricing software solutions. In early August, we shared part one, which included the technical pre-requirements a customer needs to begin their pricing journey. Today, we are delving into how we collect data as one of the initial and most vital parts of the process. Where does the data come from? Speaking to David Gengenbach, a developer at Omnia, and Berend van Niekerk, Omnia’s Head of Product, it is impressive to see how much time and attention goes into getting detailed - and most importantly, correct - data for the pricing strategies of customers. There are two types of data that provides everything needed to reprice an entire online store or marketplace: Internal data and market data. Internal data Internal data includes information that comes directly from the customer. “Everything from sales data, purchase prices, stock data, performance measures, information on champion and non-champion products, new and old products, categories, seasonal products… it’s important to provide as much information as possible,” says Berend. Insights from Google Analytics and additional plugins can also be used to understand where traffic is going and which products are most popular. If your online store is using Shopify, Magento, Shopware, Plentymarkets or JTL, you can make use of our "Pricemonitor plugins" which you can find in the respective app store. The plugin allows you to connect easily to our database, without having to involve your IT department. After the initial data is connected to Omnia, the customer has the ability to modify all information within the tool. They can clean the data, change the formatting and add additional logic and calculations to the data. In this way the user can do the required modifications, without having to bother their IT department. “There’s less hassle for the customer this way,” says Berend. External data Market data, or external data, comes in two categories, according to Berend: "Data from marketplaces and comparison websites, like Google or Amazon, and data that is directly collected from competitors' websites." Typically our customers use a combination of both. The data from marketplaces and comparison websites will provide a good view of all competitors selling the product, where data that is scraped directly from your competitors will ensure you the most up-to-date and complete overview of your main competitors. The data from marketplaces and comparison websites includes highest and lowest pieces, reviews, delivery times and many other features. How do we ensure data quality? Vetting data is also part of the scraping and collection process. David, who specialises in competitor data, shares that there are four aspects to data quality: Finding the right competitor prices by ensuring that the competitor prices are for the exact same product as you are selling. For example, if we were checking the prices on Google Shopping for the iPhone 13, we would not consider the prices for second hand iPhones, where many websites advertise on Google. These prices would not be included. Within those prices, making sure that we identify any outliers. For example, perhaps Google grouped the products incorrectly and there is a very high or low price in the grouping. The timeliness of the data: Making sure that we update the prices on a particular schedule, so that we collect any price updates quickly. Data quantity plays a role too. If we conduct a product search, and there are 10% less products today compared to yesterday, we need to investigate what may be causing that. Superior pricing strategies are informed by our data Within the retail and e-commerce landscape, there is no successful web shop or marketplace without a comprehensive dynamic pricing strategy. And, in turn, there is no complete dynamic pricing strategy without data. However, it is up to the customer how much of their internal data they are willing to give. The more data we have, the more we can create a profitable and competitive pricing strategy for each customer. Stay posted for our next part of the series on what customers can do with this data.
03.08.2022
What e-commerce players need to begin their pricing software journey (Part 1)
When the concept of retail first began in ancient Greece in 800 BC with traders selling goods and food at markets, merchants needed to keep track of their stock in a similar way retailers do so today. It began with...
When the concept of retail first began in ancient Greece in 800 BC with traders selling goods and food at markets, merchants needed to keep track of their stock in a similar way retailers do so today. It began with writing things down with a simple book and some ink. A couple thousand years later, that book turned into spreadsheets and tables; and a few decades after that, spreadsheets turned to software and digital systems. As a software creator and provider, it is awe-inspiring to see how far systems and processes that support retailers have come since the days of paper and quills. In a four-part series, we will dive into an overview of both the technical requirements and learnings for retailers and brands looking at investing in pricing software. We will also cover some of the processes our teams drive, from data scraping, sharing potential pricing strategies to the onboarding process. Let’s start at the beginning The basis for many larger e-commerce businesses is an enterprise resource planning system (ERP) like Oracle, SAP, or Microsoft Dynamics 365. In some cases, a Product Information Management Systems (PIM) and Shopsystem like Shopify are added to this set up. Smaller and medium-sized enterprises (SMEs), especially those that started online first, might only have a Shop-system like Shopify, which can fulfil all the essential tasks in the e-commerce context that an ERP-system does. As the e-commerce market is characterised by high volatility, any online stores, striving to keep up with today’s competitiveness, cannot possibly track vital data like stock volumes, sales orders, supply chains or inventory by hand. Tim Avemarie-Scharmann, Omnia’s Head of Knowledge & Scalability says, “While my cheese trader Helmut at the farmers market might be fine using Excel for most of his calculations and data flows, modern businesses, especially in e-commerce, need to integrate advanced systems that perform specific tasks automatically. This applies to your price setting as well, while Helmut can sell his cheese at 4.99€ per 100g, sometimes taking a peek at the prices from a competitor retailer will likely find themselves a much bigger market, and in some cases identifying hundreds of competitors.” Where dynamic pricing fits in When it comes to new technology and its usage, one of the first questions in people's minds is, “Is it trustworthy?” And, if you transfer this to implementing dynamic pricing software within your business, the question most people have is: “Can I trust those automatically calculated prices?” In representing the overall setup of your business and the integration of a dynamic pricing system, we think of it as a star-shaped figure, where the segments could represent the different external software services a brand is using, and the core of the star is the leading ERP/Shop system or a combination of both. Marketing, logistics, shipping, payment and pricing are just some of the additional services one has to integrate into your data flows. Even though a brand or retailer outsources the application of pricing rules to Omnia, the retailer will be in full control of the prices, as the ERP or Shop system is still at the core of your overall set-up. In a nutshell, the dynamic pricing system will receive input from your Shop/ERP system that is the signal for calculating a new price for a product. The calculation of the new price is based on the parameters that are defined with our Customer Success and Consultancy team, based on the markets and competitors monitored and pricing strategies implemented. Thereafter, the dynamic pricing system will import the new prices back to the Shop/ERP system. This way, the retailer is always in control of their price calculation. How accessible is this data? A big part of the technical implementation is establishing a connection between Omnia and the customers' Shop- or ERP-system. While in some cases a one-time, manual upload of a product list is sufficient, for example, if a brand wants to track a stable set of products in the market, some setups do require more flexibility and automation. That is the case for most retailers, where the conditions of selling can change at any time. For this, you need at least one daily data transfer, so all systems are synchronised. This can be done via simple https-feeds or by exchanging data via FTP-servers. Most Shopsystems used in e-commerce provide the option to export data via feeds and do not require coding skills. Additionally, you need to synchronise the export and import of data via the feeds with other internal processes. For example, when the new prices are calculated at 8am in the morning, you don't want them to be in your systems at only 6pm. For users of Shop- and ERP-systems such as Shopify, Shopware, Plentymarkets, JTL, Magento, we provide plugins, which make the data transfer part much easier. The plugins are designed especially for the case of transferring pricing data to-and-from our Dynamic Pricing Portal, and have pre built-in features that allow a retailer to import price updates only for products where the recommended price actually changed or to only import the price updates for certain product groups, for example, those where you have checked the results and want to make the newly-calculated price recommendation live. These cases can be covered by transferring pricing data via feeds, but with the plugins, they are easier to set up for SMEs who may not have a dedicated pricing department like larger enterprises do. Data security Especially for larger enterprises, but essentially for all of Omnia’s customers, the question “How trustworthy is the software?” does not only relate to the aspect of how to be in control of the price calculation process which we described above, but also how data is stored and processed. For this, we are currently in the process of becoming ISO 27001 certified and aim to be ready by the end of 2022. This certification ensures that we take many precautionary measures, so that all of Omnia’s users receive the highest quality standard when it comes to security and data protection. A guided process This may sound overwhelming or time-consuming for a business who is first learning about the importance of pricing software, but the opposite couldn’t be more true. Omnia’s Customer Success team are involved at every stage of the process, providing knowledge, expertise and guidance during a structured on-boarding process. As this article is the first part of a four-part series, stay posted to our next chapter on how we collect competitor and customer data. Read now Part 2: How we collect vital data for our customers
24.05.2022
Pricing as the new commander for financial growth
Figuring out a price for your product or service is not dissimilar to walking on a tightrope. On the one hand, you could purposefully overprice your product to increase profits and place your product as high-end,...
Figuring out a price for your product or service is not dissimilar to walking on a tightrope. On the one hand, you could purposefully overprice your product to increase profits and place your product as high-end, however, you may be placing the price too high, which would alienate you from the market. On the other hand, you could lower your price to make more sales, but this may result in slow profit growth and a cheaper reputation in the market. As said above, it’s a complex and technical tightrope that can sometimes result in many wasted hours spent on pricing updates and ultimately failed products and businesses. Out of all the P’s that make up the skeleton of a successful brand or retailer (product, place, promotion and price), pricing has become more and more vital to that success. Before the internet and e-commerce radically changed the way people shop, retailers could comfortably rely on this formula for financial growth. However, as e-commerce takes over physical stores and traditional shopping methods and habits, it is the pricing element of the four P’s that is showing brands the way to increased profits and scalable growth. Omnia looks at pricing as the new commander of the 4 P’s and why a particular pricing strategy - Dynamic Pricing - should be the top choice for brands and retailers. Price: The new leader of the 4 P’s Small but significant price changes have shown to be the most useful in achieving financial growth. According to a study conducted by McKinsey & Company, pricing improvements can significantly impact margins in a positive way, ranging from 2.5% to 9%, depending on the type of product and company. For omnichannel retailers, the boost was 3%. The study also found that it was pricing improvements over a reduction in fixed or variable costs that resulted in larger margin profits. This data can give brands and retailers hope that the fears or obstacles associated with price improvements, such as the risk of a competitor’s response or the risk of customers choosing not to buy, can be overcome. Despite this, many brands and retailers are still not prepared in making pricing improvements a central factor for margin boosts in the future. Going forward, only 6% of the study said that they were “very prepared” to capture the pricing opportunity and 55% said they were “somewhat prepared”. So, if brands and retailers are struggling to focus this vital element, what can they do to prioritise pricing while simultaneously learning, growing and profiting? Dynamic pricing as a solution For the average brand or retailer, both off and online, it is difficult to teach or learn dynamic pricing without a professional SaaS (software as a service) company doing the teaching and implementing. Unlike marketing, management or sales, it isn’t exactly a subject learnt at school or at any tertiary institution and there is very little reading material on it. This may explain why retailers have largely been so slow in prioritising pricing as a solution to boost profits. Dynamic pricing, as opposed to other pricing strategies, uses multiple prices for a product at various times, which are all dependent on market trends, supply and demand, a competitor’s prices, customer behaviour and internal company costs and even seasonal or weather changes. These numerous price changes are not chosen at random - in fact, it’s quite the opposite. Direct data scraping from competitors paired with third-party data from customers makes up an advanced and information-packed strategy to automate price changes, prioritise time within the business, and increase profits. How our pricing software is executed at Omnia Retail Although Omnia’s pricing software is at the helm of our unique enterprise offering, it is also our customer success division that comes part-in-parcel that sets us apart from other providers. Implementing our dynamic pricing software isn’t a rushed job that ends with our technical team leaving you, never to be seen again. In fact, we spend approximately 68 hours spread over 8-12 weeks teaching and applying our software, sharing knowledge with your team members and getting all the necessary parts of the machine well-oiled. Our customer success approach is divided into two parts: Preparation and action. “Preparation”, which amounts to approximately 20% of the process, involves the Omnia team and the client coming to share knowledge and vital information. This includes reading shared content from Omnia including the onboarding playbook and process deck; a technical setup guide; providing us with the needed information such as product lists; and any info that came from competitor direct scraping. “Action” takes up 80% of the process and involves a more hands-on approach in getting the ball rolling. It involves processes such as defining the various roles within the project and involving all members from the technical to the creative. Other processes include portal setup, data mapping, goal planning, implementing pricing strategies, education on the software and raw data, technical management, reporting and more. Thereafter, the client goes live and their relationship with Omnia continues as they may need it. Case study: Automating and optimizing pricing for Plein.nl Plein, a Dutch online marketplace for a range of toiletries, beauty, baby, and pet products, sells their stock via their own website and on other marketplaces such as Bol.com and Amazon. The Plein team needed a pricing solution to automate and optimize their prices on their website as well as on the products being sold on marketplaces, all of which have different rules and regulations. Multiple pricing strategies were needed for both their website and third-party sites that needed to run efficiently and parallel to one another. Plein’s goal is to become the number one online marketplace for personal care, and more so, their aim is to be viewed as the least expensive option in the Netherlands. With all this in mind, Omnia took on the exciting challenge ahead. Today, Plein uses Omnia’s products to receive market insights, automate its pricing strategies and to automatically calculate change prices across the market. Using both Dynamic Pricing and Price Watch, Plein was able to receive pricing data from their competitors to better inform themselves, and all pricing across multiple platforms became automated, meaning hours spent doing manual updates was spent elsewhere. We also provided insights into the tradeoff between Plein’s margins and sales. The leaders of retail pricing solutions across Europe Price optimization has a large impact on whether profits grow or not and whether retailers can thrive. For customers, it is also vital that they receive a competitive price for a product and are not swindled. The best way to balance oneself on this slim beam is to employ the smarts of dynamic pricing.
02.03.2021
Winners vs. losers: how important is the price change frequency?
Value based pricing, price change frequency, marketing cost incorporation, elasticity calculation.... There is an abundance of factors to take into consideration and an unlimited number of strategies related to pricing....
Value based pricing, price change frequency, marketing cost incorporation, elasticity calculation.... There is an abundance of factors to take into consideration and an unlimited number of strategies related to pricing. Want to find out where you are leaving the most money on the table and how to maximize profits? It’s related to how often you change the price of offered products and services. Let’s discuss price change frequency! Price change frequency In 2019, Spread Networks spent over $300 million to install 827 miles of fiber-optic cable from Chicago to New Jersey, reducing transmission time from 17 to 13 milliseconds. Why spend this high amount for such a small latency decrease? Because the currency exchange traders benefit from those milliseconds. When a FOREX arbitrage opportunity presents itself, you want to act as soon as possible - timing is everything. Think of pricing in the same way. Theoretically, any product or service has a certain selling price resulting in the highest revenue (or profit) for the retailer. This price, the pMax, depends on factors such as competitor prices, stock levels, marketing spend, and price elasticity. These factors change quite often, influencing the pMax. When a current price is no longer set at an optimal level, it contributes to lost revenue and profit. Changing prices more frequently ensures maximum value. Many retailers are reluctant to change prices at a frequent pace. Others think repricing applies to core offerings. This type of pricing strategy results in stagnation and an inability to regularly adjust prices in the future. Big retail winners generally have a high rate of price change frequency. Over a week, winners changed prices related to 24% of their assortments. Whereas, others changed prices on just a limited number of products (just 9%), and it cost them... The optimal price change frequency Retailers benefit from changing prices more often. However, it is possible to have a price change frequency that is too rapid. So what is the optimal price change frequency? It depends on a number of factors. 1 - Consumer Psychology Theoretically, a higher price change frequency is better; products spend less time at suboptimal price points. But there is an adverse psychological effect related to frequent price changes. Multiple studies and investigations show changing prices too frequently results in: Delaying purchase to wait for a better price Fixating on price rather than a product’s benefits Instigating and facilitating a race to the bottom (two retailers in a bidding war) 2 - Cost (implementation) Price changes get costly when you need to synchronize prices with physical stores. To allow daily price changes in the majority of your in-store assortiment, ESLs (Electronic Shelf Labels) are going to pay off in the long term. However, if you don’t have ESLs yet, it may be better to stick with physical (paper) tags at first, and settle on a lower price change frequency that is workable in the in-store processes. 3 - Indirect Cost Lastly, consider indirect cost, how frequent price changes influence other portions of the organization and market. If you are one of the market leaders, your pricing influences your competitors. This can initiate higher prices (enjoyed by all competitors) or a “pricing war,” forcing competing parties to continuously reduce prices. And, the more frequent the price change, the faster the race. Omnia helps address this in several ways, adjusting your price after multiple competitors have already changed theirs. Secondly, we leverage automating pricing, making sales more predictable. As soon as a price change opportunity presents itself, Omnia’s automated software capitalizes on it while maintaining your set margins. This leads to more sales for each related product. A modifying factor: price elasticity Business owners come to understand the value of assigning a pMax to each product. However, price change frequency is counterbalanced by real-time reactions of consumers and how sales figures are influenced by price changes. It largely depends on the industry. In some industries, changing prices are common, even anticipated by customers, such as with airplane tickets. In such industries, owners expect less of an adverse reaction to price change frequency. The price paid for not assigning a pMax depends on price elasticity. If a product has a low price elasticity, the effect of being outpriced/overpriced has little effect on volume. However, if the product has a high price elasticity, a small price change will have a large effect on volume. You want to change the price of these items more frequently. Omnia best practice Given the analysis outlined above, as well as our own experience from helping retailers optimize their pricing for the last 10 years, we have come to a range of frequencies that we believe is the best. As a general rule at Omnia, we recommend changing prices: at least 1 time a day and at most 4 times a day. Eager to find out how Omnia can help you determine your optimal price change frequency? Or if you want to discuss how we can advance your pricing strategies with our software - please let us know by contacting us!
15.10.2020
High-quality Data is Expensive, and That's a Good Thing
That’s right. High-quality dynamic pricing data costs money, but it’s money you should be happy to spend. Why? Here are four things you should know about data quality with pricing (and why it’s important you get the...
That’s right. High-quality dynamic pricing data costs money, but it’s money you should be happy to spend. Why? Here are four things you should know about data quality with pricing (and why it’s important you get the best data out there).
15.10.2020
What to Look for in a Dynamic Pricing Solution
If you’re a retailer or a brand, pricing is one of the linchpins of your overall commercial success. And if you’re considering a dynamic pricing solution, we understand that finding the right one for your organization...
If you’re a retailer or a brand, pricing is one of the linchpins of your overall commercial success. And if you’re considering a dynamic pricing solution, we understand that finding the right one for your organization is of the utmost importance. The world of dynamic pricing is overwhelming at the start. That’s why we created this guide to help you make the choice for yourself. So what does your dynamic pricing tool need to for you to achieve real results? Here’s the shortlist of 12 different criteria that you should look for in any solution you consider, regardless of which software vendor you use.
15.10.2020
The Ultimate Guide to Dynamic Pricing
Dynamic pricing is when a company or store continuously adjusts its prices throughout the day. The goal of these price changes is two fold: on one hand, companies want to optimize for margins, and on the other they want...
Dynamic pricing is when a company or store continuously adjusts its prices throughout the day. The goal of these price changes is two fold: on one hand, companies want to optimize for margins, and on the other they want to increase their chances of sales. Dynamic pricing is a pricing strategy that applies variable prices instead of fixed prices. Instead of deciding on a set price for a season, retailers can update their prices multiple times per day to capitalize on the ever-changing market.
14.10.2020
Price Points Podcast EP 8: Why is Data Important to Dynamic Pricing
Dynamic pricing is a tool, yes, and while it's an insanely smart tool, it can only work with the information it's given. What you put into a dynamic pricing solution as input matters and makes a huge impact on the price...
Dynamic pricing is a tool, yes, and while it's an insanely smart tool, it can only work with the information it's given. What you put into a dynamic pricing solution as input matters and makes a huge impact on the price advices it creates. If you have bad competitor data that isn't up-to-date, for example, then the tool will generate equally bad price advices. [00:00:10] - Grace Hello and welcome to Price Points, the podcast that examines the changing world of e-commerce one episode at a time. I'm your host Grace Baldwin. And today we're talking about data quality. So this is a theme we're going to explore this whole month because it's super important. Dynamic pricing is a tool yes, and while it's an insanely smart tool, it can only work with the information that it's given. What you put into a dynamic pricing solution as input matters and makes a huge impact on the price advices it creates. If you have bad competitor data that isn't up to date for example, then the tool will generate equally bad price advices so in the coming weeks, we'll see a lot of content from us about this. But today I sat down with Jasper Wiercx, one of our Solution Consultants here, to talk about data and why it's important. You've already met Jasper in previous episodes and I'll include links to some of his other interviews in the show notes. In this episode though , you'll learn about what kind of data we need, how the dynamic pricing tool actually collects that data, what a data quality assurance process looks like, why data seems to be so expensive and more. So I'm just going to keep this in short and let's just go ahead and jump right into it. Please enjoy this interview with Jasper Wiercx. Well, so thank you again for joining me. I wanted to start a little bit talking just about data quality in general. And so, data has become more important in every industry. And so why is data important in pricing and what kind of data is important? [00:01:41] - Jasper Yeah. So I think in general like you said as a company in general or an organization in general, I think you can definitely see a trend into the digital adoption. And if you want to have some way to perform in [00:02:00] a digital space, you need to have data available to position yourself, but also to make certain it's to gain insights out of the data and become more of an insights-driven organization. So as a retailer or as a brand moving into Dynamic pricing, of course, you'll be very dependent on the data that you use to base your decisions on. In that regard the quality of the data is very important, of course because you make automated decisions and at least I would be only would be confident about those decisions if I'm a hundred percent confident that the data on the line those decisions is actually accurate [00:02:48] - Grace The data that we're talking about is pricing data from both competitors and then comparison shopping engines, correct. [00:02:55] - Jasper In terms of external data. Yes. So about the comparative data or retailer data in that respect is primarily pricing data, but you can also argue that your internal data should be accurate so. Do you want to have includes more advanced Dynamic pricing strategies like stock-based you need to be sure that those data elements as your stock units sold for instance are also accurate because otherwise you will still make wrong decisions based on flawed internal data. But what if you sell your own products or have products that can't be matched, can't be compared in a one to one comparison. Then what can you do? You need different data points to steer on, to base your price on, and one of those is reference pricing. So what you do is basically for a product that's hard to compare, you make it comparable. You refer the price of one product to the price of another product that's not directly comparable. In short that's reference pricing it's used a lot in private label products for instance but can also be used in matchable products or unmatched products, but for private label it's it's a very good one because it also places you in terms of value in a relative distance towards known products. Let's say I'm making my own TV. I know, yeah quality is about 20 percent difference or 20 percent less then I'd like my price also to be 20 percent less than a famous Samsung TV for instance. So I'd refer both in quality and in price towards other other products and thereby making it comparable. [00:02:48] - Grace The data that we're talking about is pricing data from both competitors and then comparison shopping engines, correct [00:02:55] - Jasper In terms of external data. Yes. So about the comparative data or retailer data in that respect is primarily pricing data, but you can also argue that your internal data should be accurate so. Do you want to have includes more advanced Dynamic pricing strategies like stock-based you need to be sure that those data elements as your stock units sold for instance are also accurate because otherwise you will still make wrong decisions based on flawed internal data. [00:03:30] - Grace Yeah, and as they say garbage in garbage out, correct. [00:03:32] - Jasper Yeah. No exactly. Yes. That's the typical way to put it. Yeah. [00:03:37] - Grace So the crawler is separate from the dynamic pricing tool the crawler collects the data. Yeah, then whatever Dynamic pricing company you work with will check the data and then feed that data into the dynamic pricing tool, correct? That's the flow of logic. [00:03:50] - Jasper Yeah. So, yeah, actually you should see the exactly as separate. It's the fact that you have a dynamic pricing so far which automates certain decision-making on data, basically. However, the data needs to come from somewhere internal data is of course obvious. You will provide it to the software. However, the external data or a competitor and pricing data that something at the crawler looks for and makes available to that software to make decisions on. Scraping information online is just a very popular thing to have but that also makes it very difficult [00:04:27] - Grace Popular in what sense so popular for other dynamic. [00:04:30] - Jasper In the high in demand, I have to say. And it makes sense because it gives you a clear insight in how a competitor or a comparison shopping site in that case is actually offering the same type of products as you are offering. So if you can get insights in though that information so how does a product get positioned online but also at what price does it get offered that will give you Insight in how a competitor is actually operating the also means that a lot of competitors they take action to make it more difficult to scrape that the information which makes scraping and crawling websites difficult thing to do. [00:05:15] - Grace So what sort of actions do they take to prevent you from gathering that data? [00:05:19] - Jasper Yeah. So that's a good question. If if you are a crawler you often use an IP address to log into a website and if that website detects you entering that's websites too frequently from a single IP address, it will notice that and it will block that IP address. So as a crawler, you probably have multiple IP addresses or multiple servers with that via which routes your crawler can actually go to the website in order to get that information. And those got this is an example of some kind of constraints or some kind of [00:06:00] barrier. That's the this gets competitive retailers take in order to limit access to the information. So as I know is for instance Amazon as a good example is one of the most difficult players to actually scrape because yeah, they don't want to get that information widely available for everyone. So if for any reason a competitor or for instance Google Shopping as we've seen a few weeks ago actually changes the layout of its web page, that will also impact your crawler and that's what of course impact the data quality for scraping in general. You're always dependent on what is displayed on the on the website. Yeah, and as you also mentioned, we are we either of comparison shopping sites or we directly straight from the website. Google Shopping, for instance, does not display the stock levels from the retailer, so we cannot all we cannot give you information on the stock level if you have Google Shopping as a source. If you directly scrape, we can include of course the stock levels as we will scrape that. [00:07:41] - Grace So that's a good transition that into talking about dependencies. So. Why is it important than to have data from multiple places for that is that's a good example, I guess, right. [00:07:52] - Jasper So this first of all it's an indeed about what type of information is readily available on the source like we discussed with stock levels. Secondly, it's also as we just also briefly talked about is the fact that the web page is websites are constantly changing. So there by if you only have one data source, you will always be at risk of changes in the data source, if you combine multiple data sources you mitigate your exposure to the risk of someone else changing their their their layouts for instance so [00:08:34] - Grace So is then one of those examples so we're talking talking about GTIN versus URL. So we use both of them and that's a way to reduce that dependency on a URL breaking. [00:08:46] - Jasper Yeah so, not necessarily URL breaking. So we always look for the ID so the GTIN for instance or the EAN codes on a URL, okay. If the URL changes, then we of course need to inform the crawler or update the crawler on the fact that that URL actually changes. So as an example, let's take let's take Amazon and Amazon for whatever reason changes its URL our, crawler cannot find that URL any longer. So therefore it cannot find that set of GTINs to be scraped from Amazon. If you know also have a Google Shopping as a data source where Amazon actively promotes or sells products, you will still find that set of cheating products on Google shopping. Assuming that that's that's Amazon selling that via Google Shopping. [00:09:46] - Grace And so will that price on Google Shopping always be the same price that's on the website then. [00:09:51] - Jasper Yes. Yeah, yes it because school shopping requires effect that your the price that they offered a product for via Google Shopping is accurate [00:10:01] - Grace Okay. Yeah, and so if for example Amazon isn't selling on Google Shopping or isn't promoting on Google Shopping, is there a way for us to detect whether the website has changed or URL is not working?Are there any categories that this is especially useful for? And are there categories where it's not useful? [00:10:13] - Jasper Yeah. So so of course, we have a large client base all tapping into different data sources. So if anything happens with one of those data sources, we know it quite fast. And we inform our other clients who were not aware of the change and how it might impact our data quality and data accuracy. Also, we have other mitigations in place where we actually store accurate information for extended periods in order to mitigate these type of risks because we are also dependent on that. But thankfully we're working with a few very professional partners that notify us more in advance that we are very happy with in terms of data quality and we are completely [00:11:00] confident that they will do their utmost best to change their crawler as fast as possible and again update that pricing quality. We make the selection quite carefully before which partners we are working with both in terms of their professional. But also in terms if they if the data is actually accurate and it's a good that it's a good quality of data because there's a lot of scrapers out there offering rubbish data. It makes sense isn't it data is important for organizations so people are trying to monetize on that and then trying to sell the data. In that regard. you see the value of data actually going up and therefore all often also the price and those enterpreneurs or trying to take of course advantage of that by selling the same data or perceived same data the lower price. But there's also reasons why of course a price of data is at a certain level [00:12:00] is because the quality needs to be the best and therefore we decide to work only with selected select the scrapers of course and more importantly is that we as only are we offer a One-Stop shop of different data sources of those premium scrapers. If you for instance develop your own dynamic pricing solution, you would actually have to procure the data from those individual scrapers and then again combine it in your own system. And we can actually easily tell you which data source is actually the best for your specific situation. So that means determining which data source has the best match rates on your competitors in a certain market, but also to only select certain [00:13:00] top seller products of your own. And directly scrape different sources from your from the your most important retailers to ensure that you have the best coverage of the data Yeah. [00:13:14] - Grace So is there like sort of a rigorous test that that a partner goes through before they become one of our partners? [00:13:20] - Jasper Yeah. No, absolutely. So both in terms of the process both in terms of customer service, of course, and also in terms of just the quality itself to we personally check very very well before actually selling it or offering to our to our own clients [00:13:37] - Grace Okay. Yeah, and so if someone you know is dead set on building their own, are there any quality checks or what would advice would you give to someone who wants to actually procure their own data and work with data sources on their own? How can you avoid the ones that are selling you snake oil? Or is it really hard to tell? [00:13:59] - Jasper Yeah, I would talk to a lot of different layers, of course and just do a very solid data check on it before you make any decisions. I've seen from multiple clients that they already had a certain certain provider in place, but that the data that we provide was actually more accurate. And for some reason all the active users is already knew that the data was pouring some sense and it also it also makes it difficult to completely trust the system itself, but how to check how to do that. Yeah, there are multiple ways to do it. And if you want more information, I think you just we can do a check for you if you are curious and see if it [00:14:47] - Grace Yeah. Yeah get in touch [00:14:48] - Jasper Exactly [00:14:49] - Grace Actually talk to somebody who knows the different data sources available [00:14:54] - Jasper Nowadays, I think as a retailer or as a brand you want to sell your products, [00:15:00] that's what you're good at. Do you want to position yourself correctly in marketing? There's no reason to spend a lot of time in these type of nitty-gritty details, but very important details, without really knowing what to what to look for. Yeah. Yeah, exactly for all the. Let's say just a few dollars in the penny in on the monthly monthly cost. If you would compare that to the actual time effort you would need to spend in it. You could very much argue that your time is way worth to spend on something else. [00:15:35] - Grace Yeah, because I mean we have a full team here doing quality checks and everything. Yeah, exactly. So an organization or a company that wants to really do this themselves would need to hire a ton of people to do this yeah, and then take a lot way a lot of resources from their Core Business correctly. [00:15:50] - Jasper And value based pricing starts off then with mapping out your assortment based on some characteristics. [00:15:52] - Grace cool. All right. [00:15:53] - Jasper Just one more thing. I think it's good to mention. So. [00:16:00] We offer the data ourselves because we feel like it's important to offer that as this the only way that you can use our system or dynamic pricing system in the case, but we also offer the solution that you can give us your data and we plug it into our system. If you really want to. [00:16:19] - Grace So why would someone want to do that? Oh, so you mean so someone like a company can come in and say hey we are we're using this data source. We'd like to install it into a dynamic pricing solution. Can we do that? [00:16:31] - Jasper Yeah. So let's say if you already have a data provider and you might be dependent on a certain contract term that you have when you don't want to double up on cost and I can completely understand that. And then you can we can use that data plug it into our system and then you can still use dynamic pricing. Simply for the reason that we feel like if you really want to we want to give you that flexibility and if you really think that's going to make your business successful we're willing to support that. Of course, we are going to challenge you on the data accuracy simply for the reason that you will not experience a good dynamic pricing solution or our tool be very much dependent on the data that you give up to us. [00:17:18] - Grace If a company is coming in and they already have a data provider can they use that and then also enrich it with data that we have [00:17:24] - Jasper Absolutely. [00:17:26] - Grace You can get like a quadruple whammy there? Yeah, actually from a ton of different data providers. Yeah, which sounds like the kind of the best of both worlds if you're in a contractual a contractual situation. [00:17:37] - Jasper For instance or simply because you just want to look into whether how dynamic pricing would look but to be to be fair, we've also seen in the past that the actual results of dynamic pricing was quite was quite bad because the data underlying was just bad. [00:17:57] - Grace Yeah. Yeah makes sense Perfect. All right, well. Perfect. Alright. Well, thank you so much. This has been really helpful. It's definitely upended a couple of notes I had but for that's for the better. If people want to get in touch with you how just by email and then also LinkedIn is okay. [00:18:15] - Jasper Yeah, so LinkedIn is okay and my email is Jasper at Omnia Retail.com or reach out to via the website. [00:18:22] - Grace All right, perfect, and I will include all of that in the show notes. Yeah, thank you. [00:18:26] - Jasper Thank you so much [00:18:31] - Grace Thanks for listening to price points. I hope you found this episode insightful and learned more about data than you expected. If you'd like to chat further about data. You can reach out directly to Jasper at Jasper at Omnia retail.com. That's J-A-S-P-E-R at Omnia retail.com or via LinkedIn. If you'd like to chat with me, you can also catch me via the same channels. In the meantime, though I hope you have an awesome rest of your day. SHOW NOTES: Omnia was founded in 2015 with one goal in mind: to help retailers take care of their assortments and grow profitably with technology. Today, our full suite of automation tools help retailers save time on tedious work, take control of retail their assortment, and build more profitable pricing and marketing strategies. Omnia serves more than 100 leading retailers, including Decathlon, Tennis Point, Bol.com, Wehkamp, de Bijenkorf, and Feelunique. For her clients, Omnia scans and analyzes more than 500 million price points and makes more than 7 million price adjustments daily. Website • LinkedIn Music: "Little Wolf" courtesy of Wistia TO CONTACT HIDDE ROELOFFS VALK: Email: hidde@omniaretail.com LinkedIn: Visit here TO CONTACT GRACE BALDWIN: Email: grace@omniaretail.com LinkedIn: Visit here
14.10.2020
Price Points Podcast EP 5: Building vs. Buying a Dynamic Pricing Solution
Thinking of building your own dynamic pricing solution in-house? Product Manager Berend van Niekerk tells you everything you need to know for your solution to be a success. [00:00:10.180] - Grace Hello and welcome to...
Thinking of building your own dynamic pricing solution in-house? Product Manager Berend van Niekerk tells you everything you need to know for your solution to be a success. [00:00:10.180] - Grace Hello and welcome to price point the podcast presented by Omnia Retail. I'm your host Grace Baldwin. And today we're talking about what it takes to build your own dynamic pricing solution. Something we hear a lot especially from larger companies is that they want to build their own dynamic pricing solution in-house. And the reasons why are understandable. You want to keep your data as centralized as possible. And if you want to build your own solution that's totally fine. But you should prepare yourself for success what goes into dynamic pricing solution from a technical perspective and what sort of manpower do you need. I ask these questions and many more to Berend van Niekerk our product manager here. Berend is hard to describe. He's quite a character. He's absolutely brilliant. But his mind moves faster than his mouth sometimes. And what's funny is that he's the first to admit this. He has a master's degree in industrial engineering and management science from and Dutch speakers you'll have to excuse me here the University of Groningen. And he has been with Omnia from the start. Today as Product Manager he is responsible for the algorithms and the functional development of the software gathering all the e-commerce and software knowledge within the company, combining this with the wishes of our leading e-commerce customers, and translating this into a tool that helps customers automate their marketing and pricing strategies. Berend took the time to explain to me what actually goes into making a dynamic pricing solution powerful and gives you some practical tips on building a solution that works for your company. So if you're considering building a solution for yourself you're going to enjoy this one. So please help me welcome Berend van Niekerk. So let's get started. Thank you for sitting down with me. Berend can you tell me a little bit more about yourself and what you do here at Omnia. How long have you been here. [00:01:59.650] - Berend Sure. Yeah my name is Berend van Niekerk. I started only almost six years ago so almost from the start. I've been involved in a whole growth path. We we went through the beginning we were just a small company providing data insights in pricing a bit of pricing automation and evolved over times into the full company where we work for bigger enterprises now actually serving a full suite of both pricing and marketing has been very excited. At the beginning I was involved in everything from customer service to consulting to sales and a bit of further management of course. But nowadays I am responsible for these functional developments at Omnia, so meaning what does the system do in actually translating our own customer needs to a roadmap and do that together with our Chief Architect as I'm responsible for what it can do and he is responsible and how it's actually done. It's very exciting and a lot of developments going on an exciting future. [00:03:00.560] - Grace So your actually wrote Product Manager is your actual title. And so you're just really responsible for setting the roadmap figuring out where we're gonna go and then Nathan who's the Chief Architect is more responsible for how we're actually going to do that right? [00:03:16.540] - Berend Yeah yeah basically he's responsible for the execution so that the code around it the database is not responsible what the system does. So do you need to calculate a sort of thing. Do I need to have an interface around it. How does it need to look. What does it need to do. What kind of business rules are in the system and how can we improve that our customers can do to work easier and make their everyday lives that company happier. [00:03:40.720] - Grace Yeah makes sense. And so today we want to talk about building versus buying because that's something that we see a lot in the in the market is that some people say you know we're working on building our own solution we don't really necessarily want to buy dynamic pricing software when we can do it in-house. And so I wanted to explore that a little bit with you and talk about what are the pros and cons of both building a solution but also buying one. So maybe it's a good place to start to talk about what actually goes into a dynamic pricing solution. And like how that how you can materialize that by yourself or with a company. [00:04:19.510] - Berend Yeah I think it's a it's a very important part of the onboarding and this is of course not only the alignment between the business and I.T. but also within the business there is various departments that need to be aligned on what you're trying to achieve with your dynamic pricing. So I think at the beginning customers think that's OK I need to have a data set so I need to know what the competitive pricing and market are. Then I need some basic pricing rules which is built by a BI guy or by a guy from IT and I don't need to upload it to my system. And then I got a full dynamic pricing system. Um in reality and those three parts so the data, the pricing logic, and actually the automation around it to make that a success, there's way more around it. And to make it fully adopted by a company and I think that tradeoff is often not made at the beginning but companies start to realize that once they go into adoption they think OK to make this a success, it's not as simple. So I need to build certain systems around it. I need to have the knowledge in-house. I need to further develop it. I need to maintain it. And what you often see happening is once they try it out and they come back to us again because we've got a full suite solution. [00:05:35.650] - Grace Can we talk a little bit so like what sort of systems do you actually need. [00:05:38.740] - Berend It all starts with the data actually. So you need to have a full overview of the markets and up to date overview to make great decisions. That sounds easier than it is. So what you need to do you need to have connections with multiple data suppliers to provide you the full overview of who is selling what against what price with what delivery times and means you get it at continuously and actually update that multiple times in day. So that's more to market side. You need to understand what is happening who's selling for what. And the other side of the data you need to update is your own data. You need to know OK what are my exact marginal costs. So it was my purchase price. What are my delivery costs. The logistical costs what are my marketing costs to sell a product and you need to have all the product information around it. So what are certain categories. What is my lifecycle over product all that information need to get out. They need to store somewhere and update continuously [00:06:37.540] - Grace Does that information change a lot? That internal information? [00:06:39.580] - Berend Yeah both so internal information categories for example of a product don't change as much but the purchase price costs around it, they are often renegotiated and we need to feed it towards us and also to the stock levels for example and stock levels not just how much you are gonna stock but what you often see at our customers is that they got different warehouses and different warehouses with different stock levels and those different warehouses mean that their delivery time is different and based upon that. It means also that you get longer delivery times you're less competitive versus your competitors so you probably need to make another tradeoff. So actually that continues. That always updates you need to actually update at least once a day but preferably multiple times a day. You need to get to fresh information to make the right choices at that time. [00:07:30.230] - Grace And is that pretty. That sounds pretty labor intensive to make those updates right. [00:07:34.790] - Berend Yeah it is a process that you need to automate. I've seen it happen sometimes that it uploaded had somewhere manually but that's not enough to automate a poem. So what you want is a full live connection that is set up once and easy easy to change also. So if you need to have additional fields from a from your own database it should be able to add it to the system. Sure you can make the right choices upon it. So example can be a customer of ours. They feed their life cycles and they got a different rule in that. So you want to add a field to the feed easily connected to our system and then make sure that you can use it later. So for example if it's in lifecycle one which is a new product you might want to be in a bit more aggressive to to let the market know you're out there. But if it ends and you don't have enough stock anymore more to lost products you probably want to have a different pricing route. So all that customer specific dynamics you want to capture within the system to allow to put rules on that and to automate eventually on it. [00:08:37.390] - Grace And so what about data validation. How important is that? [00:08:41.810] - Berend Very important especially in automation. Data validation is if you if you got to manual step in between somewhere. So if you got a system that you apply some data you do some check you do an analysis and then you get some prize advices and you manually check them and upload it to the system. You actually got manual steps going in between which you can verify does this system do the right thing and then you can upload it to your own system. Unfortunately nowadays dynamics they go way faster so meaning that you need to change your price multiple times a day over your complete assortment to be able to do that you don't go into manual checks in between. So you want to fully automate it and you want to trust the system on it. So you want to actually data all the data that comes in is a certain data validation. So we make the right choice every time and you can then automatically change your price to it without doing any manual checks in between. That means you need to build a whole system around it that supports that the dusted checks and that has the right feel safe in place and eventually that you feel comfortable automating the practice of your full assortment within maybe a couple of boundaries but you want those boundaries to be as wide as possible. So you actually automate the biggest part of your assortment continuously which is a quite a challenge. [00:10:05.210] - Grace Yeah so I was going to ask. So that sounds that sounds like it's I mean how much manual labor do you think goes into just building that kind of a system. [00:10:13.550] - Berend There is it's all often I think underestimate it. Um building a complete system with the right failsafes in place takes probably a year's worth or two to do completely. There's not only data validation but is also the validation in later steps in the system so you get the validation of the data which is the input then you've got certain rules you apply and you want to change those rules continuously. So any change you do in those rules. Every little change you want to allow the end user to do that immediately but that means you don't have much time to check all validations upon it. Um building a complete system with the right failsafes in place takes probably a year's worth or two to do completely. There's not only data validation but is also the validation in later steps in the system so you get the validation of the data which is the input then you've got certain rules you apply and you want to change those rules continuously. So any change you do in those rules. Every little change you want to allow the end user to do that immediately but that means you don't have much time to check all validations upon it. So the system itself should due to changes within the developed nations within the system so you can change the setting. It's validated immediately that it's correct and does the right thing and then you can automate upon it. So it's a it's even more than just data validation you also need to validate all the settings around it and all the changes you do. [00:11:15.920] - Grace Yeah that sounds like an undertaking. [00:11:19.260] - Berend Yeah. [00:11:20.010] - Grace Um so moving into the the pricing logic. So can you explain that a little bit in the pricing rules and what. So if someone wants to build their own system, what do they need to know about pricing rules and pricing logic [00:11:32.630] - Berend Yeah. So what you often see is you've got a dataset of all your competitors so you know who your competitors are selling the same products. You can start making choices upon that. There are different level of choices. So what you can do you can follow a certain competitor and saying OK I want to follow competitor A and change my price which is which is quite simple. You can also follow a group of competitors at the cheapest price of a certain competitor. You can also grow a bit more advanced and say given the past performance if I follow certain competitor then I see this happening. It means I need to have a certain distance of that competitor to have an optimal price. So that's more towards intelligence. You can build that. But what it means you need to think about the whole strategy upfront and then you need to ask your I.T. department or your BI team to build all those rules and what you don't know most of the time in advance is how will certain things react in the market. How will your competitors respond to your changes? So what we often see happening if if our customers build their own system is that they want to think about everything that's going to happen in advance and they want to implement it. And that means that it's a very big change you want to do at once which is scary. You want to validate that and it's difficult to implement what you actually want to allow to use it to do in those rules is like also I think Travis mentioned in his last podcast is you want to use your to take baby steps and iterate all the time. [00:13:12.630] - Grace Side note: Berend is referencing a recent episode I did with Travis Rice one of our customer success managers. I'll link to that posting that description below. If you're curious it has price points Episode 3 [00:13:25.290] - Berend So do a small change first maybe take a part of the assortment. Do a simple strategy change implement let's see what the results are. Learn from it and change it again. If you want to allow users to do that you need to have a system not only pricing rules but actually a full interface around it which provides users the insights in the market so understanding which other competitors that are selling my products. How do you response to changes. I do. What are my margins I make on each price level. So if I follow a competitor A Do I still have enough margin left to make a good profit. All those inside you need to capture within the system. So you need to have a portal around it to provide your insights from those insights. You can set new rules and new rules. Indeed you can put in your own I.T. system what you want you actually want to allow is the end user to each time he he thinks of opportunity big or small you want him to be able to execute that immediately. There should be no barrier to changing that rule because if you lowered a barrier it means they can experience more they can build out their systems step by step and eventually you will have a way better pricing system. [00:14:42.310] - Grace Sorry to interrupt but so that you also want to be able to do this on a product level. Right? [00:14:46.810] - Berend Yeah. Yeah. So you want actually to do it on every cross-section of your assortment which is important to you. Sure it can be simple things like categories or brands which are fixed subsets of your assortment but it can also be on product level if you really want to do it. We most of the time digital files to go to product level changes because that goes against automation. So what you actually want to do you want to think about okay Why do I want to change this specific products to a certain price. Often there's a logic behind it. For example the product is in a certain promotion so I need to fix that price for a certain period. What you what you can do is get all the product ideas and set a fixed price to it about what you actually want the system to do is recognize that it's a promotion for all the product that are in promotion just used to promotion price. That means each time a party goes in promotion automatically the system changes to that price. That means it saves you tons of labor and you can build your pricing strategy piece by piece and eventually focus on the strategy instead of the execution which is which is key and you want to have a system that allows you to do that. [00:16:01.830] - Grace And does Omnia and let you do that? [00:16:03.160] - Berend Yeah. Yeah. So the promotions is an example. The lifecycle for products I gave earlier is another example. But also what you can do you can import any viable that you provide into a feed or into a connection to own the app. So there are a few fixed variables like to get original brands more dynamic for rivals like a promotion. We're still quite static but you can also go way more advanced and thinking okay what is my stock level that continuously changes and what are my skills over the past weeks. And if I got too many weeks of sales left I might want to go more aggressive so then it becomes more dynamic and within Omnia you can connect each field quite easily so once you got to connect set up you get a list of fields and you say Okay I want to use that we've been on here you can alter it a bit if you want to should do a calculation opponents and then we import it multiple times a day with the latest values and then based upon all the changes that are happening during a day we can set automated rules so that your strategy is being executed continuously to the to the product level. [00:17:15.160] - Grace So then once you have the price advices you will want to be able to put them in a store right. [00:17:20.620] - Berend Yeah you want to. Once you have calculated the new prices you want to upload them to your e-commerce platform where you display them on your website or even third area you want to also change them within the stores itself. So what you see happening more and more is that retailers have electronic shelf labels to be able to cope with the dynamics of the online market of the online competitors I must say. So you need to allow the system to do it continuously and you once to not have any manual steps in between. So you want to have the system calculate everything from the data to the logic and then providing prices back as the market changes continuously during a day you need to change prices at least once or multiple times a day. That means you can't have any manual steps in between. So that means you need to automate fully. Being able to automate fully, you need to validate all the steps in between you need to know you're safe. So what you want to do is you want to make sure that within certain boundaries you can have loads automatically and fully and can trust the system to do so. That is a big challenge. So that's the whole chain from the data input you getting to where you export you need to have four steps in between validating data validating calculations should do. Validating that export is right versus what you did before and then you say OK it's within a certain boundary within a certain safety I will love that change to go on that for in-store infrastructure that takes a lot of time to build. So you need to invest that time. Otherwise you can't automate and if you can't automate you can't keep up with the markets and you won't have the benefits from a dynamic pricing system. So you need to do that for your full assortment continuously. So it's the infrastructure around it which is important. And on top you need to have the raw calculation power because well to update everything to get all the newest competitor data prices you calculate that to the newest price advices and to export at a low of processing power going on so you also need to invest in the infrastructure around it to support that. And eventually if you have those those both you can upload it continuously to your system and make sure that once something changes. So either your own internal purchase price changes. That means there's a new optimal price or if a competitor changes the price you want to capture those signals and then upload immediately back to your system. The newest optimal price so you can keep up with the dynamics of the market and get the most out of it. The dynamic pricing system. [00:20:08.170] - Grace Do you think it's worth it for enterprise companies to try and build their own dynamic pricing system? [00:20:14.740] - Berend It's always a trade off you need to make. I would say 9 out of 10 times it's the work that goes into is underestimated. We got 7 years experience both in building a system but also in the knowledge around it was needed to execute a right pricing strategy. That's a lot of head start we have to for our own companies to build something like that is on the same level we do. That means you need to invest a lot of resources in it both in the I.T. side as well as on the more the business side so what we need to do what's the business logic. How are the markets reacting. Well the I.T.. It's building the first set up but also maintaining it and doing all the iterations upon it and building the system around it, so a portal and a few full execution. That's a lot of work. And while every company has is the I.T. resources are really scarce. So then it's a question do you want to invest for five developers full time building dynamic pricing system or do you want to invest those guys into building your e-commerce platform or well anything that's important for you or for your everyday sales. Often that's right of goes to building your own platform and if you use a third party too it means you get more developers left on building the things that are important for everyday sales and leaving the bring pricing to a third party tool. And on top a tool like ours allows end users like the category managers or the marketeers to use the system themself without any I.T. interference. And so that means you you can be more powerful so every idea you have you can execute immediately and having that I.T. boundary there it means that you want iterate as fast and you want won't build the full strategy you want it to to be to make it a success. [00:22:20.530] - Grace So for the final question is there, if people are really convinced that they want to build their own system do you have any final advice for them? [00:22:32.230] - Berend Yeah I would say be sure that you invest as much time in the portal that supports it as you do in the logic and the data itself. Without having the right portal an interface around it it will not be adopted by the users within the company and the change management and adoption that is needed within a company. You won't succeed if you don't allow people to get along on that journey. To understand why you're making certain changes and to encourage them to think about destroying itself and to enable them to be able to change it without any interference of I.T. spend time on that because that's as important as having rights I.T. logic underneath it's allowing the end user to iterate continuously to have the insights it will enable them to do a better job than if they are blocked by any possibilities. So I think that's the key thing we learned over the past years. You need to take everybody along so it doesn't. So it is not the black box. You have the right insights and you allow the flexibility within the tool so people can actually use it in their everyday lives and improve continuously. [00:24:00.570] - Grace All right. Well thank you Berend. This has been super enlightening. If people want to get in touch with you, how can they reach out to you? Yeah you can always be in touch if you want it know by email. So that's Berend at omnia retail dot com. Or call the office here. I'm happy to um to talk to you and you can always reach out on LinkedIn if you want to. [00:24:21.850] - Grace Cool. Perfect thank you Berend. [00:24:23.840] - Berend No worries. [00:24:32.460] - Grace Thanks for listening to price points and I hope this episode was enlightening. If you'd like to talk with Berend you can reach him via email or via LinkedIn and you can find both of those in the show notes. As always if you'd like to talk to me, you can also see my contact details in the show notes as well or contact us via our web site. But for now have a great rest of your day. SHOW NOTES: Omnia was founded in 2015 with one goal in mind: to help retailers take care of their assortments and grow profitably with technology. Today, our full suite of automation tools help retailers save time on tedious work, take control of retail their assortment, and build more profitable pricing and marketing strategies. Omnia serves more than 100 leading retailers, including Decathlon, Tennis Point, Bol.com, Wehkamp, de Bijenkorf, and Feelunique. For her clients, Omnia scans and analyzes more than 500 million price points and makes more than 7 million price adjustments daily. Website • LinkedIn Music: "Little Wolf" courtesy of Wistia TO CONTACT TRAVIS RICE: Email:gijs@omniaretail.com LinkedIn: Visit here TO CONTACT GRACE BALDWIN: Email: grace@omniaretail.com LinkedIn: Visit here
14.10.2020
Price Points Podcast EP 4: Maintaining Organizational Clarity around Dynamic Pricing
What's the top trick to getting the most out of dynamic pricing? Communication. In this episode Gijs Schuringa explains why organizational clarity and communication is crucial to dynamic pricing success, and gives you...
What's the top trick to getting the most out of dynamic pricing? Communication. In this episode Gijs Schuringa explains why organizational clarity and communication is crucial to dynamic pricing success, and gives you actionable ways to ensure you have organizational alignment. [00:00:09.800] - Grace Hello and welcome to price points. The podcast presented by omni retail. I'm your host Grace Baldwin and this week we're talking about organizational Clarity and communication around dynamic pricing dynamic pricing software is a big organizational change and in our experience here in Armenia a lot of customers who are just getting started don't understand how many different parts of their organization can benefit from this institutional shift. The benefits go far beyond your pricing department and can extend as far as logistics merchandising marketing and more. The key to getting the most benefit out of a dynamic pricing software is to make sure you have the right people present for the conversations around the tool. To explore this a bit more. I talked with one of our onboarding managers here at Omni. His name is Gijs Schuringa her or how you actually pronounce it. Courtesy of Esther de Winter who is our marketing manager, Gijs Schuringa. Many of our non Dutch customers just call him Mr. G. Born and bred in Amsterdam, Gijs started his career as a digital consultant at Magnus Red a management consultancy here in the Netherlands. He moved to Omnia in February, and has been an excellent addition to our team since. Gijs has an infectious enthusiasm for life, and there really couldn't be a better person to help our customers get started with Omnia. Gijs and I chatted about what he thinks is important for companies going into the dynamic pricing process, how you can discover who needs to be at the table, and more. So sit back and relax and enjoy this interview with Gijs. How are you today. [00:01:45.680] - Gijs I'm fine thank you. How about you. [00:01:47.260] - Grace I'm doing well. Can you tell me a little bit about who you are, how long you been at Omnia, and what exactly you do here. [00:01:55.370] - Gijs Yeah sure. So name is Gijs Schuringa. I have been with the Omnia since the start of February. I am the customer onboarding manager here at Omnia which basically means that I will be helping all our new customers retrieve value from our tool as soon as possible after signing contracts. That's it. [00:02:14.270] - Grace Today we're talking about alignment of course and is that a big part of your job. Do you have to help people align on what and get all the different parts of an organization aligned together to make dynamic pricing a success. [00:02:27.650] - Gijs Yeah I think it's a it's a very important part of the onboarding and this is of course not only the alignment between the business and I.T. but also within the business there is various departments that need to be aligned on what you're trying to achieve with your dynamic pricing. Otherwise there will be unhappy departments within the organization. [00:02:47.430] - Grace And so what are the departments that you usually try and bring to the table. [00:02:51.470] - Gijs It really depends on what customer we are implementing. For example within a e-commerce pure player it's always quite easy to have all the right people in the right place. However if we look at more traditional retailers there's often various departments that need to be aligned within the implementation to ensure everyone feels their needs are being taken into account. The traditional organization you have big for example merchandising departments who sometimes are in charge of pricing for online on the player. There's not very often a merchandiser they are there sometimes there but it's different. [00:03:27.860] - Grace Why do you think clarity is. Do you consider it a vital part of dynamic pricing. [00:03:34.070] - Gijs Yeah I think it's really important that every part of your organization knows what you are doing because it is quite a transformation that you're going through. And if departments feel left out this could really jeopardize the long term success of your implementation. [00:03:48.830] - Grace So this alignment isn't something that you typically see people have already done before you get involved to before they've actually started the dynamic pricing process or is it something you really kind of coach people through. [00:04:00.740] - Gijs I think it needs to be present in both during the onboarding as well as during our sales cycle or even before that first alignment of course starts before you starts in the sales process. However during the sales conversations you'll probably find out stuff that you haven't thought of before so that will probably require some alignment as well. But then when we really start the actual onboarding there's a lot of things coming up that a lot of organizations do not think about beforehand and therefore often I see during the onboarding that we need to add in other people in the conversations that we hadn't thought of before. But just to make sure that we have all the relevant information and stakeholders at the table. [00:04:40.520] - Grace Is there someone that you're always invited to the table that a lot of retailers or brands kind of forget about. [00:04:45.860] - Gijs It depends really on the organization. So for example sometimes we are at an organization that has a clear pricing department and often there the feeling is stand that there should be capability built within the pricing department. However I feel it's really important that for example your procurement team is also involved or your category management because they are also often involved in for example the purchasing and purchasing is of course an important part of your pricing. So if you don't have access to your purchasing prices for example or your logistic prices your marketing costs these are all things that you want to take into account when setting your price. So therefore it's really important that all these different people are aligned so that we know what to take into account in our dynamic pricing capability. [00:05:30.380] - Grace What happens if there's not this alignment. Have you ever experienced that? [00:05:33.830] - Gijs So far I have not because I think before we go live at our customers you'll see that they do some testing and also a line within their companies to see whether these test results actually make sense and during the testing we often stumble across things and departments that we haven't thought about. And then they get involved and then the strategy gets adjusted accordingly so that before we go live we have all the people at the right place [00:06:00.290] - Grace Happy and enjoying it getting the most out of it. [00:06:02.940] - Gijs Exactly. [00:06:03.980] - Grace So within onboarding there's a couple of different meetings right now. And so you invite people in so you have all the stakeholders present at that meeting. Is that the only time that everybody's in the same room or is it the only time you facilitated or is do you want that alignment to continue outside of the workshops. [00:06:20.210] - Gijs I think it's more important even outside the workshops. Of course it's important that they are in the workshop. However most of the testing and getting familiar with the tool and the pricing strategy is happening outside these workshops. So what I always suggest my customers is to have sessions internally where they test and go through the tool and understand really what is happening under the hood and also after the implementation. This alignment needs to continually be present throughout your organization because if you only align during the implementation and then tool arrives in a silo again any changes that happen within your strategy will not be understood by your colleagues and then you have misalignment again. So yeah it's really not only a tool for implementation but really a business change or transformation so to say so I guess implementing that in pricing means you transform the way you work from that point onwards. [00:07:16.170] - Grace And do you feel. Do you ever experience some sort of resistance to that or now do you think. Do you feel feel like people are afraid to change how they're working? [00:07:25.960] - Gijs I think for a lot of organizations there is a little bit of hesitancy to start with dynamic pricing. They might feel that they will be out of control and that there is an algorithm deciding what's happening and they won't be able to understand why or what. And this is also one of the reasons that we in I have a Show Me Why button which all users can always press and it will show you on the product level how certain price has been decided. I think that's quite important. What you also see in terms of resistance is if you don't align beforehand. For example if you were omnichannel retailer and the online departments want to implement dynamic pricing you can then stumble across the fact that you won't be able to update your prices in the physical shops as fast as you would want to. And then this could lead to a lot of resistance within the offline departments which in traditional retailers are often also the powerful departments. This can really hinder the process of implementing that in pricing. [00:08:27.520] - Grace And so in that example what do you then advise are ESLs. [[00:08:31.810] - Gijs Yeah. Yeah it could be an option for these retailers however for example if you're a fashion retailer it's quite hard to implement ESLs. Another option would be to for example only reprice once or twice or three times a week only in the evening. Another question you could ask yourself is do we per say when to have the same prices in-store as on this website that's a strategic choice you need to make as a retailer. Another option that we saw and one of our customers was that they said with our dynamic pricing in the stores we just have the recommended retail price on the price tag. And if due to our dynamic pricing prices would have been lowered then at the cash register they'll have a lower price. So that will need to price them and make them even more happy customers. [00:09:21.580] - Grace But they don't do it if like their online price is higher? They'll just they'll cap it in-store at the recommended retail price? [00:09:28.810] - Gijs Yeah. And online often as well. So the price on the price tag is the maximum price product could be at. And if you're lucky at the cash register you'll find out that you even have to pay less. [00:09:38.320] - Grace I wonder that if consumers then know that they're checking the prices in stores probably right. [00:09:43.880] - Gijs I think nowadays consumers in store check the prices. Like if you're somewhere and somebody see a pair of sneakers for on the euros and you check online and you can see okay I can get them for 90 euros here. That's a 10 percent difference. That makes sense to them. Get them online. But if you then in the store hear, "Yes. But our online price you also pay here. However we can do updated that frequently. But we will always give you our best price." That also creates customer satisfaction. [00:10:11.960] - Grace And so then coming to a strategic choice like that that comes from having the offline department also in these conversations about your dynamic pricing. Right [[00:10:20.890] - Gijs Yeah. [00:10:21.740] - Grace So what happens when everyone is aligned? [00:10:26.710] - Gijs I think when everyone is aligned you get strategies that maybe without aligning you wouldn't have kind of. So by having all the different departments thinking about your pricing strategy and really looking at how we can get most out of the dynamic pricing tooling. Yeah that really works well for an example of this is when retailers add in stock levels. So for example in logistics departments join in the conversation. They say OK if we know this beforehand then we can add in our stock levels in our pricing strategy and prevent from having to go into the end of the season sale. But already throughout the season taking into account stock coverage and stock levels dynamically price based on that throughout the season and in the end have a higher margin on your SKUs. [00:11:11.920] - Grace So by that you mean instead of waiting until the end and then you have this huge surplus, you can follow the market a little bit more and maybe price a little bit more competitively to sell more throughout the season and earn higher margins than just doing one big bulk clearance sale. [00:11:26.500] - Gijs Yeah exactly. So what you see in traditional retail a lot is that throughout the season price stays the same. And then at one point you go into sale and you immediately go into 30 or 50 percent discount. If you were to reprice based on your sales volume and your stock levels you could also already throughout the season maybe drop a little bit in price, be most competitive in your market, and then already make sure that you don't have to go into the deep end of the season sale. But these are things that really you need alignment between the different departments to come up with these kind of thing. [00:12:02.710] - Grace So in that example what are the different departments that would align? So your pricing, marketing, [00:12:06.740] - Gijs Yeah logistics is quite important in this one. Yes. And also of course our team because it's for some companies quite hard to feed these kind of data to. Yeah. So it's very important to have I.T. involved from the start to make sure everything we want is also technically possible. [00:12:25.360] - Grace So how can organizations actually like what does a practical way that organizations can maintain clarity or other dynamic pricing and make sure that it's a success. [00:12:34.780] - Gijs I think it's good to keep everyone up to date when you do any pricing strategy update. So whenever anything changes in your settings you communicate that throughout your organization so that everyone knows okay we're going a different direction now. If you're going to become more margin focused then rather than sales volume focus is important for everyone to understand that is happening. [00:12:54.730] - Grace So within that to do that. Do you then do people set up like a slack channel or how do you see people do that actually? [00:13:02.140] - Gijs Yeah I think sometimes it could be as simple as a slack channel in other organizations. It's more often like soap boxing events during like a monthly updates. Okay. Our pricing strategy has changed. We're now moving into this and that. Yeah. There's various examples I think really. [00:13:18.250] - Grace How frequently will these changes be announced? [00:13:20.380] - Gijs Looking at our customers the larger enterprise for example the D2C markets often don't change their strategy that much whereas small e-commerce players tend to test a bit more and play around with it. So therefore in a small store a Slack channel would be more appropriate. [00:13:37.480] - Grace I guess that's kind of a cool thing about software like Omnia is that you can really make it your own right? [00:13:42.500] - Gijs Yep. Yes. So what what we always say during the onboarding is it's not that once you implement Omnia, it will manage your prices and you don't have to look at it anymore. We challenge you to look at the results, evaluate, internally align between departments, see whether you can optimize your strategy, and test and see how you can continuously optimize your settings and your setup and taking into account that your competitors are probably also using dynamic pricing. You probably have to react to their strategy as well and that is also an ever evolving process. So therefore Yeah it never stops. However there is a shift going from manually repricing your products according to your strategy towards really focusing on how can we have the best strategy and for that of course you will need a lot of alignment within your company. [00:14:35.020] - Grace And you also need something to take care of the strategy for you right. Because you can't do the strategy and the manually updating it. [00:15:04.570] - Grace So then my last question for you, Gijs, is do if you have what are your practical tips for really making dynamic pricing a success from the start and for making sure that everybody is online in your organization. [00:15:20.620] - Gijs Yeah. So my first suggestion would be to really start aligning the topic as soon as possible. I would say preferably even before you start looking at what different vendors are out there so that you have you're sure what you're looking for because there is quite a difference in the vendors. And if you were looking for a particular strategy it might be worth already knowing that before selecting your vendor. Another thing what I would always suggest is if there is any unclarity on what you want to achieve, hire a consultant. Dynamic pricing goes really really goes down to the foundation of your business. And therefore I think it would make sense to hire a consultant who could help you out direct your thinking and getting the right people at the table. Lastly I would say whilst you're implementing that pricing already start thinking about how you're going to integrate this within your running processes and how you are going to communicate throughout your company around the topic. [00:16:15.610] - Grace Excellent. All right. Well thank you for talking with me. That was a pleasure. If people want to reach out to you what's the best way to talk. Feel free to add me on LinkedIn or send me an email as I said only a retail dot com call I will put that in the show notes because if you're like me you can't pronounce. It's helpful to see it. So. Sure. Awesome. Thanks guys. Thanks for listening to price points. If you'd like to get in touch a case feel free to send him an email or reach out on Lipton. I'll include his information the show notes because it's probably easier than just listening to me say his name again. If you liked the podcast let us know. I would love if you sent me an email at Grace at the retail dot com to share your thoughts. I'll also include that information in the show notes. In the meantime though I hope you have a great rest of your day. SHOW NOTES: Omnia was founded in 2015 with one goal in mind: to help retailers take care of their assortments and grow profitably with technology. Today, our full suite of automation tools help retailers save time on tedious work, take control of retail their assortment, and build more profitable pricing and marketing strategies. Omnia serves more than 100 leading retailers, including Decathlon, Tennis Point, Bol.com, Wehkamp, de Bijenkorf, and Feelunique. For her clients, Omnia scans and analyzes more than 500 million price points and makes more than 7 million price adjustments daily. Website • LinkedIn Music: "Little Wolf" courtesy of Wistia TO CONTACT TRAVIS RICE: Email:gijs@omniaretail.com LinkedIn: Visit here TO CONTACT GRACE BALDWIN: Email: grace@omniaretail.com LinkedIn: Visit here
13.10.2020
Price Points Podcast EP 3: Risks and Rewards in Dynamic Pricing
What are the risks and rewards of dynamic pricing, and how can you tip the scales towards reward? Travis Rice explains all in this episode of Price Points. [00:00:11.590] - Grace Hello and welcome to price points...
What are the risks and rewards of dynamic pricing, and how can you tip the scales towards reward? Travis Rice explains all in this episode of Price Points. [00:00:11.590] - Grace Hello and welcome to price points episode three. I'm your host Grace Baldwin. And today we're talking about the risks and rewards of dynamic pricing. Risk aversion falls on a spectrum. Some people are naturally more tolerant of risks but others try to avoid it like the plague. No matter where you personally fall on the spectrum though when it comes to big changes at work are warning bells start to ring. It's understandable. Tools like dynamic pricing do affect your job pretty dramatically and any big changes the way we work are enough to leave us with sweaty palms and an elevated heart rate. But is the perceived risk around dynamic pricing actually valid is dynamic pricing really that big of risk in the pursuit of this answer. I sat down with Travis Rice one of our customer success managers working with our enterprise customers to make sure they get the most out of Omnia and by conducting business reviews giving helpful tips and tricks and updates on where the product is going. Just from our chat it's pretty obvious that he understands the resistance to dynamic pricing deeply but that he will also talk us through that resistance until you feel totally comfortable with the tool. Travis and I talked at length about the fears and risks around dynamic pricing and he gave me a lot of reasons why the practice is actually less risky than you might imagine. So sit back and relax and enjoy this interview with Travis Rice. Welcome Travis. Thank you for sitting down with me. Can you tell me a little bit about yourself and what you do here. [00:01:45.800] - Travis So thanks Grace. Name's Travis. I'm a customer success manager here at Omnia. My main responsibility is to help customers achieve value through our platform to really understand what they can do strategically and commercially with Omnia for their pricing strategies. So when it comes to our team as a whole I work directly with our consulting team. I work directly with our product team and many internal facets to really help us further understand what do customers need. What can we further iterate in our product to help them again get the most value moving forward. [00:02:08.730] - Grace So today we want to talk a little bit more about fear and dynamic pricing in the risk when it comes to dynamic pricing. So what are people afraid of when they think about dynamic pricing. I mean do you think that there is a resistance to dynamic pricing and why. [00:02:31.970] - Travis Actually I do and I have seen this as a reoccurring trend especially a lot of the new customers that we've been onboarding even some of the prospects. So. I actually think it's funny I come from a world of the background of marketing and this is what marketing went through five six years ago where a lot of the tasks were being done manually. A lot of the work was being done manually especially on the agency side and there was a huge resistance to automation there there's a huge resistance to the marketing automation whether it's you know big email flows or the agency side in the performance side of saying Okay well we don't want to give our bidding over to Google right. And so at that time it wasn't necessarily more effective but today it is. So I see that very similarly here in the retail space in that I believe a lot of customers and in their executives are saying we're really a little resistant to moving towards a dynamic pricing model. We don't necessarily know how this is going to be advantageous for us or on the other side. We do know that this is something we want to move towards but we're scared in the process. We don't know how this is going to look both the change internally and the change for what our business outcome is going to be. [00:03:46.970] - Grace Why do you think people are resistant to it? Do you think there's a fear of a lack of control or a lack of oversight in it? Do you think that there's some sort of a fear within the automation itself that makes people a little nervous about it? [00:03:59.700] - Travis Yeah I mean I think people are inherently resistant to change. And I think when you have a process and whether it's the most efficient or not it's something that you're comfortable with and it's something that you know when you're changing that process it can feel like it's a little bit of a risk. Something like Omnia it's a platform right. It's not going to come in and tell you what your commercial strategy should be what your pricing rules should be. But I do think that it does force people to really understand and evaluate that themselves. You can't use Omnia if you don't understand what pricing rules you want to put in place what those pricing rules are eventually moving towards in terms of your overall commercial strategy. And so I think that a lot of again that maybe that fear of that lack of control is valid right. I think that you're right to feel that way any time you implement a new system it does change your internal workflows and it does have an impact on your bottom line. But the thing that I would also encourage people to look at is what's the opportunity if we do change to this how much better can our internal workflows be how much more depth of data is going to be available to our pricing team. What can we then get insights from in terms of okay. We know that we're moving dynamically with the market because a lot of these industries these days that you wouldn't even think tires fashion. I mean obviously electronics is an obvious one but a lot of these industries have already moved to denim and pricing. And so if you're not in your resistance to it you're not necessarily saying well I don't want to be the first one to be moving here you will your competitors are. You also need to understand that there is a lot of opportunity cost to resisting this change and giving into that fear. [[00:05:35.270] - Grace How big of a change is Omnia? [00:05:37.250] - Travis I think it can be a big change. I think it can be a big positive change too. So when you look at Omnia as a platform again it does not work if you don't have a commercial strategy laid out. If you don't have pricing rules laid out if you don't know what you want to achieve with Omnia. It's simply a tool and a tool allow companies to really transform the way that they do pricing let's say internal pricing team you're spending x amount of hours on actual execution and putting in this strategy week in and week out manually looking at prices manually making changes and think if you're able to put that number of hours in two more strategy. I think that is transformational in and of itself. When you look at the bottom lines knowing that okay the prices we're putting out there to the marketing channels that they're going towards it's going to impact the marketing department. It's going to impact pricing. It's going to impact purchasing. We have a lot of insights in reports that can be taken in by the purchasing teams. So going through and getting better negotiations from the suppliers and from the brands themselves. So I mean I think when you're looking at that whole organization there is a ton of opportunity that's available. It's just depends do you want to give in to the fear of hey this is a brand new process this is a brand new product. It's a platform I don't quite understand yet. Or do you want to say this is a great opportunity for me to learn something new and for me to make our organization competitive if not more competitive in the market [00:06:58.580] - Grace So the fears behind dynamic pricing I think that there's a lot of fear. Like when we flip the switch what happens next. And there's a fear of OK are we going to have a race to the bottom. Are we going to understand what's happening. Do these fears have any validity? [00:07:12.770] - Travis Yeah I think they do hold some validity and I do understand where they come from. You know I think the first the first thought that a lot of directors and executives have about dynamic pricing and what the impact will be is. OK. The algorithm is just going to make us the cheapest and then the competitors the cheapest and then where the cheapest and we end up having this race towards the bottom. It doesn't work that way. You know Omnia takes into account a lot of business rules. It takes into account minimum acceptable margins and there's certain fail safes that are actually in place. So I do think that there are inherently like any new system any ERP system any marketing system any financial system. There are inherent risks if we just said here's a platform. Go ahead and use it. Right but Omnia has a team of consultants. We have an onboarding team and we have a customer success team that I'm a part of that really teams up with each and every one of our customers to make sure that they understand what are the safety nets that in rules that we have to be putting in place. What are the types of data that we need to take into account. How do we ensure that we have the proper integrations. So I do. I do think if you just said more generally is there a risk to dynamic pricing maybe. How do we mitigate those risks and do oftentimes do we almost eliminate them. Yes. And so I do think that at the end of the day moving towards dynamic pricing is a very low risk high reward opportunity for many many companies. [00:08:43.460] - Grace How can companies tip that balance of risk and reward more towards reward? So we've already mentioned really understanding kind of what you're doing finding the right team. Is there anything else really that helps make this more reward than risk. [[00:08:59.720] - Travis Yeah I think the first it comes comes back to you need to be realistic about where your industry is moving towards. There is going to be opportunity cost with not moving towards dynamic pricing. If you're still doing things manually internally and changing your prices the market's likely changing if not every day multiple times a day. So I do think that that's a big aspect to take into account. But the other thing is if you want to get more reward out of this than risk again this is an opportunity to really define what sort of pricing rules do we want in place what is how does our pricing impact our overall commercial strategy and I do think that I've been surprised at some of the conversations I even I've had my time at Omnia with customers that these are the types of conversations that can go six, 12 maybe even 24 months without being re-evaluated. Are you continuing to re-evaluate your strategy. Are you continuing to look back and say do we need to tweak some of our pricing rules. Do we need to get more granular with specific brands or categories in some companies don't. Some companies are really good at that and those are the ones that are getting an advantage in the field. So the ones who are gonna get the rewards. Are we going back in and are we using Omnia for getting more granular with our pricing strategies and the reporting that we get back from the insights that we take. Are we then going back and re-evaluating as an organization or as a pricing team. Okay well now we had the first iteration how do we do better the next time how do we continue to iterate. And that's really the process that most people are going to see the most value from. [00:10:39.110] - Grace Do you think that that the fact that you're automating so much of the previous manual labor now gives you time to go over those insights and actually point a little bit better and and iterate and test and figure out what works and what doesn't. [00:10:51.320] - Travis Yeah exactly. I think that hits the nail on the head. You know us as humans we only have a certain amount of hours in our week some are willing to put more towards worker or you know more towards other things. But at the end of the day we only have a certain amount of time that we're going to be able to invest in our work. The more that we can allocate that to strategy the more that we can really move that towards collaborating with our team rather than the actual execution of work in the manual processes. And you look at that over time the aggregate of that time saving the aggregate of that time going towards areas that are going to more effectively impact the bottom line I think is really going to increase the reward people will see from using dynamic pricing especially with a tool like on how do you think people can get comfortable with dynamic pricing from the start. [00:09:45.770] - Grace So what are some of the different ways brands can differentiate their assortment across different channels? [00:11:38.750] - Grace So you know I think a lot of people maybe understand that dynamic pricing is important and maybe at the point where they know that they need to find a solution but they're still not totally comfortable with it. Do you have any advice on how to actually just feel more comfortable with the idea of dynamic pricing. [00:11:56.630] - Travis Yeah absolutely. I mean first thing it's a you know self plug here but I would recommend reaching out to Omnia. We have a team of consultants we have a team of customer success managers like myself who are always willing to go through the process. I mean I thoroughly enjoy the conversations I have where there's question question question question because that's our goal we want to make you feel comfortable with not only the transition but the process and what the ultimate outcome could look like for you. It's not for us to define what your strategy should be or could be or what rules you have to put in place that's for you to find out that's for you to really determine internally you know what is important to us as an organization where do we want our focus to be. But if you're feeling uncomfortable if you're feeling a call we don't know the first steps or here's a platform that we're not quite as comfortable. And I actually liked your question before about how do we know if we foot the switch that this isn't going to go wrong. Do you think that at the same time you look at the opportunity that's available to you you also need to be realistic in that this does impact organizations and it does impact jobs and I fully understand the hesitancy to move a process you know over to a more automated system. The great thing that on our team provides is again going through the actual tangible fail safes that are in place what sort of catch all pricing rules you should implement so that things aren't missed. And the insights that you can get from it. So we're gonna be able to then kind of coach you through that whole process. And the last thing I'll say on this is it doesn't have to be a switch that happens right away. I think just like anything else every other industry the idea is hey we're gonna get this up and implemented and all of a sudden in three months or in six months everything's changed. This is a process and it should continue to always be a process just like any other thing in business when you're rolling out a new product. You realize okay there's certain iterations we need to have or maybe we change the messaging on our go to market for this for this product. It's the same thing with your internal pricing right. So we're gonna start and maybe some companies start a little bit more conservatively and say that's OK you if you want to get used to the system you want to put in place the first few rules that are really going to start to impact it within a certain you know within a certain margin that's perfectly acceptable and then start to get more granular from there then start to iterate from there. Not to say that the simplicity almost isn't more effective sometimes it can be sometimes these really granular plans right off the bat they're just too complex to understand and our system gives a really transparent way to see what pricing rules are impacting the final price. How did it get. How did the system come to that so that your pricing team can really say okay I'm comfortable with how Omnia is contributing to it. I understand how they made the pricing changes and I agree with them. So again I think it is. I see as a process I don't see this as a switch that you know we go from before and after. And then it set it and forget it and I don't believe there is any really effective system that does do that. So I wouldn't view pricing the same way either its foundation piece in The it's all based on what it again come back to you what is your commercial strategy what are the pricing rules that you believe are gonna work best or have worked best for you. And then how do we start to automate that once you get the insights back. How do we start to iterate and get better and better and better. [00:15:12.080] - Grace How quickly can someone see value and see the reward of dynamic pricing? 00:15:17.260] - Travis Yeah it's a good question and I think it again it's going to come back to how you wanted to find value are you going to be seeing in your bottom line week one maybe maybe not. Are you going to be able to start seeing process improvements once we do turn on on year once you do start to integrate that in with your internal workflows. Yes you're going to be able to see right away how is on your making these pricing decisions. Is it changing our pricing. Is it automated through my whole process at least as far as is we want to allow to begin with. So yes from day one from a process standpoint the value is going to be instant. Now how does that value translate into the bottom line to increasing margins to increasing revenue. That's again going to be largely dependent on did we have the right pricing rules in place or do we need to re-evaluate those pricing rules to be more effective moving forward again. I wouldn't say Omnia is not something where you just set a specific target and say hey like in marketing I want to you know 3000 percent return on my ad spend Google go ahead and do this Omnia is not necessarily translated in that way again I think the value from the bottom line is going to be how effective is my commercial strategy in my realistic about where we're at in the market and what sort of pricing rules do I want to integrate into that commercial gee how effective are those. So the two pieces that I see is the internal value side. That's instant and I will continue to grow as people get more comfortable with our platform. The revenue the margin and the bottom line business side that happens over time. And I think that's just like any other system. Again I'm all about iteration. I'm all about the process but it can and I think again you look at quarter after quarter after quarter that's when things get really interesting because the little iterations and the better that we get each quarter. Now when you start to look at year over year I think that's when things can get really fun for looking at the bottom line there. [00:17:11.970] - Grace Well thank you for sitting with me. If people want to get in touch with you. What's the best way for them to contact you. [00:17:18.160] - Travis Yeah if anyone wants to reach out. My email is Travis at Omnia retail dot com. [00:17:23.130] - Grace Can people also find you on LinkedIn? [00:17:24.900] - Travis Yeah of course. [00:17:26.500] - Grace Okay cool, I'll link I'll link that in the show notes. [00:17:28.900] - Travis All right sounds good. Thank you Grace. [00:17:37.220] - Grace Thanks for listening to Price points. I hope you enjoyed the interview with Travis if you'd like to reach out to him. Feel free to email him at Travis at the retail dot com or on LinkedIn. As always I concluded his contact info in the show notes so you can easily access it if you'd like to get in touch with me. You can also send me an email at Grace at a retail dot com or on LinkedIn and you can also find that information in the show notes as well. I would love it if you reached out and told me what you think of the show, your ideas for future topics or how I can just make it better. In the meantime though I hope you have a great rest of your day. SHOW NOTES: Omnia was founded in 2015 with one goal in mind: to help retailers take care of their assortments and grow profitably with technology. Today, our full suite of automation tools help retailers save time on tedious work, take control of retail their assortment, and build more profitable pricing and marketing strategies. Omnia serves more than 100 leading retailers, including Decathlon, Tennis Point, Bol.com, Wehkamp, de Bijenkorf, and Feelunique. For her clients, Omnia scans and analyzes more than 500 million price points and makes more than 7 million price adjustments daily. Website • LinkedIn Music: "Little Wolf" courtesy of Wistia TO CONTACT TRAVIS RICE: Email: travis@omniaretail.com LinkedIn: Visit here TO CONTACT GRACE BALDWIN: Email: grace@omniaretail.com LinkedIn: Visit here
30.06.2020
How Odd Even Pricing Helps You Utilize the Power of Psychology
As a continuation of our series on different pricing strategies and pricing methods, in this post we'll take a deeper look at Odd Even pricing. This pricing strategy looks at the psychological effect that numbers have...
As a continuation of our series on different pricing strategies and pricing methods, in this post we'll take a deeper look at Odd Even pricing. This pricing strategy looks at the psychological effect that numbers have on the human brain, then uses that power to shape price perception. Curious about the other strategies in this pricing series? Scroll to the bottom of the post to find links to other strategy-related posts. What is odd even pricing? Odd-even pricing refers to a pricing method that’s similar to charm pricing. It's a form of psychological pricing that uses underlying human motivations to drive consumers to action. It’s the strategy of odd-even pricing utilizes a psychological appeal of the numbers that are displayed in a price. What is odd pricing The “odd” in odd pricing refers to the odd number at the end of a price. Odd prices typically use endings like €0.99 or €0.95 to signal specificity. What is even pricing Even prices are the exact opposite: they end in an even number or zero. An example of an even price would be €20 or €1.50. Odd even pricing examples You don’t need to look far to find great examples of odd number pricing. But some of the best are found in late-night infomercials. The charm of these commercials is in their delivery of course, and the packaging and bundling is expert. But one of the (many) elements that make these commercials so effective is the use of odd pricing. The pricing scheme is presented along with strategic bundling and classic scarcity tactics to create an incredibly convincing reason to call now and order these products. Even pricing examples are nowhere near as prevalent as odd prices. And that notion is confirmed by some odd-even pricing statistics. When you look at odd even pricing statistics, it’s easy to see that even pricing has long been overshadowed by odd pricing. According to a 1997 study, the most common ending numbers for a price were 9 and 5. These two numbers accounted for a whopping 90% of the prices they analyzed. Just the 9-ending alone dominated 60% of the data set! It’s no wonder that even prices feel underutilized — they are rare to find! Related: How Will the Coronavirus Affect Retail? Psychological pricing advantages and disadvantages Does odd even pricing work? The answer is a resounding yes. The effects of odd even pricing more psychological than tangible. Even though there’s no real difference between €19.99 and €20.00, the two prices feel very different. However, psychological pricing does have its advantages and disadvantages. The biggest pro of odd even pricing is the amount of control it gives you over your brand and price perception. When you understand how different numbers “feel” to consumers, you’ll be able to build a better marketing mix (which includes pricing) that is strategic. You can use the power that these deeply-held feelings have to subtly influence the way people look at your products. However, this power behind psychological prices is also the biggest con for odd even pricing. The feelings that different numbers give consumers are deeply-rooted; it will be hard for any company to break these molds. If you don’t understand how an odd even pricing strategy works, you may accidentally harm your brand. How to build an odd even pricing strategy So we’ve covered the basics of odd even pricing and the pros and cons of each method, but how do you actually use odd and even prices to your advantage? Here are some starting ideas. Use even prices, but give odd discounts If you want your offer to feel like a discount, a great strategy is to present the product at an even price, then offer an odd-priced discount. An example of this may be discounting a €16 shirt down to €14.99. You can also mix this with a high runner strategy to optimize for the most popular products on the market. Related: Everything You Need to Know about the ROPO Effect Create memorable prices Consumers are used to prices that end in 9’s and 5’s, so much so that these prices have lost their “sticking” power. If you want your price to stand out, try advertising it at a less-frequently used odd price. For example, instead of pricing a lamp at €25.99, try selling it at €23.99. This number will leap off the page to shoppers and you’ll be able to capture their attention. Want to take it a step further? Try advertising at an even price that really stands out. When you make your price seem precise, consumers believe they are getting the most up-to-date price on the market. Luxury brands and odd even pricing If you’re a luxury retailer, you may want to consider using even prices rather than odd prices, especially on new items that gain a lot of attention and boost your brand perception. Since odd prices are so popular, consumers often equate these psychological numbers with sales. Because of this, many luxury retailers eschew odd prices and choose to go with more "whole" even prices. So, to conclude, what are the best numbers to use for pricing? When choosing between even ended pricing versus odd ended pricing, the answer is disappointingly simple: it depends on your commercial objective and goals. Odd-even pricing is considered to be a rather effective approach to pricing, but you will only reap the benefits of this strategy if you align it to your commercial ambitions. If you want to be seen as a luxury retailer, chances are you will want to use even prices. These rounded numbers give a sense of “wholeness” to the price. However, for most retailers an odd pricing strategy makes the most sense. Consumers are so used to odd numbers that even numbers may feel too expensive, depending on your category. In the end, do some research on your competitors to see what they do, then decide if their pricing aligns with your goals. Curious to learn about other pricing strategies or interested in our Amazon guide series? Check out some of our other articles below: What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers. Here’s What You Need to Know About Psychological Pricing (Plus 3 Strategies to Help You Succeed): Modern day pricing is so much more than a numbers game. When thought about correctly, it’s a powerful way to build your brand and drive more profits. How to Build a Pricing Strategy: A complete guide on how to build a pricing strategy from Omnia partner Johan Maessen, owner of Commercieel Verbeteren. The Strategies Behind Amazon's Success: Learn how Amazon became 'the place' to buy products online. The Complete Guide To Selling on Amazon: In this guide we answer some of the top questions we hear about Amazon and give helpful hints on how to succeed on the platform. How Does Amazon's Search Algorithm Work: Find out how Amazon connects their shoppers with relevant products as quickly as possible. Price, The Most Important P in the Marketing Mix: In this article we'll look at the relevance of the 7 P’s in today’s online marketing context.
14.04.2020
3 Pricing Strategies that Incorporate Product Popularity
We’ve just announced a new data service called Product Popularity Scores. This new data service is an add-on to your Pricewatch export that shows the product popularity scores for different price comparison websites in...
We’ve just announced a new data service called Product Popularity Scores. This new data service is an add-on to your Pricewatch export that shows the product popularity scores for different price comparison websites in NL and BE. It’s designed to give you a better idea of what’s popular in the market so you can make more informed strategic choices when it comes to buying, marketing, pricing, and more. We wanted to give some inspiration into how you can actually use this service to create better pricing strategies. Below are three examples of pricing strategies that you can enhance with Product Popularity Scores. What is a Product Popularity Score? Product Popularity Scores are insights about the popularity of different products. At Omnia, can give product popularity information for a number of comparison shopping engines (CSEs). We don’t provide a “score,” per se, of product popularity, but rather provide information like the number of out-clicks a product has or who the most popular retailers are per comparison shopping engine. The type of data can vary depending on the comparison shopping engine you use, but in all cases it’s interesting to know how products react on different CSEs. Different product popularity strategies Product popularity insights are extraordinarily useful data points to incorporate into any of your pricing strategies. Here are three ideas on how to get started with this data. 1: The high-runner strategy The high-runner strategy combines two major pieces of information with your internal strategy. These two pieces of information are product popularity on the market, and product price elasticity. A high-runner is a product in your store that is extremely popular and which is sensitive to price changes. Depending on your category there may not be very many of these products in your assortment, but they tend to sell frequently. An excellent example of a high runner product is a recently-released smartphone. With the high-runner strategy, you use the power of these products to draw people to your store. This means discounting heavily on these products and marketing them aggressively so they appear favorably in comparison shopping engine search results. This pulls people to your store and builds consumer confidence that your store offers the lowest prices on high-demand products. Once a consumer has added this high-value product to their cart on your site, they’re unlikely to leave. This is when you can present them with different, inelastic products as a cross- or up-sell. These fully-priced products are where you can recoup your lost margin on the high-runner products. Take the smartphone example. If a shopper has entered your store and placed the cell phone in their cart, you might consider showing them a phone charger or phone case as additional suggested purchases. If the price is significantly lower than the main product they’re buying, consumers typically have no problem adding the inelastic companion item to their carts as well. 2: Bundling Product bundling is a pricing strategy that most retailers are well aware of. With bundle pricing, retailers will offer several different products (or services) as a package deal. This package is sold to consumers at a slightly discounted price than it would cost to buy the products separately. An example of a bundle in the outdoor clothing category Bundling is common in many categories, and you may use a bundling strategy already. But product popularity scores can let you make even smarter bundles. One way you might use bundling is to make your high-runner items even more attractive. If you price aggressively on the high-runner items, you can pull traffic to your site. You can then use bundles as a way to sell even more product once you have the traffic. Another way you can use bundles and popularity data is by creating bundles of popular products and using the bundle to optimize for price. In the traditional high-runner strategy, you discount each popular product individually and use adjacent products to recoup the lost margin. But what if you bundled the most popular products together? If you see that the most popular products in the market could combine well together, you could create a bundle of these high-ticket items and sell it at a slightly higher price than you could if you discounted each product individually. While you can still discount the products individually to draw people into your store, offering the products together gives you some room to improve your margins. Consumers may be willing to pay for the convenience of the bundle, especially if it’s an extremely large bundle that would require significant time investment to recreate. Example of a bundle built around one major high-runner item: a Nikon camera. It would require a significant amount of time to find all of these products separately. 3: Stock-based pricing A third strategy you can enhance with popularity score data is a stock-based pricing strategy. Stock levels and product popularity are inherently connected. If a product is popular, you’ll want to have more of that product in stock. If a product sells less frequently, less stock is required. In our blog about stock-based pricing strategies, we outlined four simple scenarios: When you have high stock levels, follow a pricing strategy as normal When you have high stock levels, decrease your prices When you have low stock levels, increase your prices When you have low stock levels, decrease your prices If you add popularity score data to these strategies though, you can make your pricing more nuanced. If you have low stock levels of a very popular product, for example, you can increase the price by a larger percentage than you would for products that were less popular. Final thoughts Product popularity scores are interesting data points that let you enrich your pricing strategies with even more nuance. This data is remarkably insightful and can help you come up with creative ways to sell more products or earn more margin.
27.03.2020
What is Stock-Based Pricing?
Last week, as a response to the coronavirus, we offered some pricing advice to our customers: use stock levels as a way to prevent unintentional price drops on your products. To give some more background on this pricing...
Last week, as a response to the coronavirus, we offered some pricing advice to our customers: use stock levels as a way to prevent unintentional price drops on your products. To give some more background on this pricing method, we decided to create a blog post outlining what stock-based pricing is, why you may want to use this pricing method, and a few different strategies to consider while implementing it. Keep reading to learn more about this versatile pricing method and how you can use it strategically. What is stock-based pricing? Stock-based pricing is a pricing method. With this method, you can choose to use stock as a factor for a product’s price. In the graphic below you can see stock-based pricing at work in its most traditional setting. On Monday, when stock levels were high (as indicated by the blue bar), the price for this product (indicated by the blue line) was somewhat low. By Tuesday and Wednesday though, the stock levels dropped, and the price increased as a result. By restock on Thursday the price decreased again. As stock numbers dipped on Friday and Saturday, the price increased once again. Why use stock-based pricing? Stock-based pricing combines well with other pricing methods, and is a great way to enhance your overall pricing strategy. It also gives you some more control over what happens in your store as stock levels change. Even if used alone, stock-based pricing will help protect margins and can make your store more competitive. When you make a pricing rule, instead of making rules on actual stock levels, you want to set rules on stock coverage and stock age. Stock coverage is stock level divided by sell through. It's a more insightful metric because stock levels mean very little without relating to sell through. In Omnia, the field to use for the sell through is units sold in the last four weeks. Stock age is the number of days since the last stock increase or resupply. If you don't use both of these metrics, your dynamic pricing tool may begin to immediately discount on new products. At the start, the stock may be high, but the sell-through may be zero. Examples of stock-based pricing strategies Stock-based pricing can work into many different kinds of strategies. In some ways it should be an element of any well-rounded pricing strategy. If you’re just getting started though, there are four simple ways to use stock based pricing in a dynamic pricing tool. When you have high stock levels: use your standard pricing strategy This strategy is a “business as usual” strategy. When you implement this rule in your dynamic pricing tool, the tool will follow your standard pricing strategy as long as stock levels remain high. When you have high stock levels: decrease your prices Do you have some unwanted inventory that you’d like to get rid of? This is a great chance to use stock levels as a trigger to decrease the price. This strategy can be used any time of year if you have overstock, or simply just want to pursue an aggressive pricing strategy. When you have low stock levels: increase your prices In most cases, it is perfectly acceptable to increase your product price if there is a limited supply in stock. The main reason to do this is to prevent running out of stock too quickly on high-runners. This is especially useful during the coronavirus pandemic when global supply chains are unstable. This strategy also follows the basic law of supply and demand, and is something consumers understand inherently. That said, it might be worth packaging this strategy around a limited-edition product that has extra, more expensive features. When you have low stock levels: decrease price The final basic stock-based strategy is to lower your price when your stock levels decrease. This may sound counterintuitive, but if there is product that you want to clear out, this may be a strategy to consider. This strategy is great for end-of-season sales or holiday-themed products, for example. Advanced stock-based pricing The above scenarios are only the beginning of what you can do with stock-based pricing. Below are two more “advanced” pricing methods. Use seasonality When it comes to seasonal products, low stock may not be a good trigger to increase prices. In the case of these products like winter jackets, outdoor sports equipment, home repair supplies, and more, the response to stock levels will vary by the calendar month. Say you’re selling winter coats. If your stock is low in November, it might be a great trigger for a price increase. But if your stock is low in April or May and your price increases, you risk missing out on sales or damaging your price perception. If you are selling seasonal goods, you can have your dynamic pricing system automatically check if your stock rotates at a healthy pace. Is your stock rotating too slow? The system will slightly decrease prices. Are you selling too fast? The system can slightly raise prices to add some extra margin. By using this strategy, you maximize your bottom line margin on a SKU level and prevent going into the end of season sales. Do you need to update the seasonality of these products every few months? Not necessarily. Your dynamic pricing tool may have seasonality embedded into its pricing rules. In Omnia, you can provide the end of season date in your feed and the tool will automatically factor this into its price advices. Add sales data Combining stock-based pricing with sales data from the previous week (or month) can be useful for planning your pricing and stock strategy. If you see that sales are consistently higher on Mondays, for example, you can adjust your prices and stock levels on that day according to your commercial strategy. If your goal is to be a premium retailer with small-batch orders, you may limit your stock on Monday and increase your prices accordingly. If you want to follow a more aggressive pricing strategy, you may increase your stock for the Monday flow and decrease your prices. Final thoughts Stock-based pricing is a great supplement to any existing pricing strategy. During the coronavirus outbreak as the market becomes more dynamic, it’s especially useful to protect the stock levels of your high-runner products and prevent unintentional shortages in supply.
14.11.2019
Take Control of Black Friday with These 3 Pricing Tips from the Experts
Is Black Friday even worth it? That’s a question that many retailers and brands ask themselves around this time of year. Is it worth all the trouble? The early starts. The late nights. The number crunching. The price...
Is Black Friday even worth it? That’s a question that many retailers and brands ask themselves around this time of year. Is it worth all the trouble? The early starts. The late nights. The number crunching. The price watching. The long days and the short rests in between...Black Friday is stressful and resource-consuming... So is it even worth it? The answer is a resounding yes — if you’re strategic about it. People are primed to buy on Black Friday, and as a retailer, it’s a shame to discount the psychological power this holiday has on consumers. Many consumers will surf the internet just to see if there is a deal available, and even if they don’t intend to buy, many will walk away from the day with one or two items. There are plenty of ways to infuse strategy into your Black Friday game plan. But as pricing experts, we wanted to talk about what we know best: how to price effectively on Black Friday. We ran an analysis of all of our market data to uncover some trends about Black Friday for you. In this post, we’ll discuss the data, highlight important trends, and give you tips on how you can make Black Friday more profitable with the information you have. Black Friday pricing pressure: should you change your prices? When it comes to Black Friday, your price matters. A lot. In fact, according to Google, pricing and promotions are 13% more influential in the week leading up to the last Friday in November than at any other time of the year. But just because people expect discounts doesn’t mean that you need to slash prices for every product in your store, nor is it what the market actually does. We analyzed the top 100 Amazon bestsellers in 300 categories to see how different price points reacted during Black Friday 2017 and 2018 and looked at a few things. First, we looked at trends over the last two years and determined if there were any categories where pricing pressure was growing. Second, we compared the number of price changes by category for the week before Black Friday to the number of price changes in the week of Black Friday itself. The results were interesting, and the analysis proved our hypothesis that the number of price changes is increasing across the board each year. And that number of price changes shows no sign of slowing down. How to win this Black Friday How can you make Black Friday a success? The key is to use data strategically to build strategies ahead of time. Here are our top tips for getting the most out of this Black Friday. Pick your battles To build a battle plan, you need to consider two questions: 1. Do Black Friday promotions match my commercial strategy? You won’t be able to respond to every price change that occurs on Black Friday...nor should you, necessarily. You need to know when to react to the market, but you also need to know when to not react because it will be detrimental to your brand perception. To figure this out, go back to your commercial strategy. If you want to be seen as a premium brand or retailer, for example, you might not want to cut prices the same way someone who wants to be the kind of shop with the lowest-price-for-everything would. You could unintentionally drive the overall market price down, and no matter what, you’ll always be undercut by competitors whose goal is to be a cheaper alternative. 2. Where should I apply promotions? With your commercial strategy at the top of your mind, consider how Black Friday can actually help you achieve your company’s goals. One of the easiest ways is to narrow down which categories you want to focus your time and energy. You can’t realistically tackle every category with the type of energy it requires to maximize profits on every product (that is, unless you’re using an advanced dynamic pricing software). Your team isn’t a machine that can work 24/7 without losing their sanity. To be effective, you should be selective in where you target your team’s energy. You might want to run a promotion on all Consumer Electronics, for example, or on any other subset of your assortment. You can then focus wholly on running that promotion effectively. Price increases and decreases You don’t always need to decrease your prices on Black Friday (or in the week leading up to it). Our analysis uncovered that many shops actually increase prices during Black Friday week, though price decreases were still 1-2x as common. There are a couple of explanations for this. One is that retailers and brands might run a margin optimization strategy to capitalize on increased consumer willingness-to-spend around Black Friday. These price increases could also be a response to supply and demand. If one shop sells out of a popular item, other shops in the market might increase prices as the supply shifts. Finally though, many of these price increases might just be the result of a lack of data. Shops might not even know their prices are higher during Black Friday than the week before because they can’t keep track of their price changes. Whatever the reason these price increases occur, you should watch out for them in the week of Black Friday. They are an opportunity for you to react. You could lift your prices with the overall market to capture more margin, for example, or you could decrease your price to stay underneath the competition. Use the right data Every year countless news outlets publish “exposes” that show Black Friday deals aren’t as steep as most consumers believe. But does that stop consumers from buying? Definitely not. Black Friday brings in more and more sales each year. For the most part, retailers and brands aren’t trying to take advantage of consumers during Black Friday. It’s actually because shops don’t have the proper data to know whether a product’s price was lower in the last month than what they advertise on Black Friday. Data like historical trends help you know the long-term market price for popular products over the course of several months, so you can make sure your Black Friday price is lower than the historical average. You need roughly three months worth of historical data to understand what the lowest price of the product has been. Historical data also shows which products people search for in the weeks leading up to the holidays so you can guess which products will be popular on Black Friday itself. Another data source that’s interesting to use is price elasticity. If you understand how different products and categories respond to changes in the market, you can prioritize which categories need the most attention. Finally, competitor pricing data is always useful, but especially so for Black Friday. Without competitor pricing data delivered directly to you, you can’t monitor the market effectively. You can take that data a step further with automation tools like automated price checks and automated price updates. These tools save valuable time so you can focus more on strategy. Increase the frequency of your price changes Black Friday is one of the most competitive days of the year, if not the most competitive day. To stay in the game, you need to shift your prices as quickly as the rest of the market. Our analysis of the top 100 Amazon bestsellers across 300 categories shows we’re headed toward a Black Friday standard where of one in every four products experiences a price change. That’s roughly 7,500 products from that analysis alone. Some categories have already surpassed that 25% threshold. We discovered the most competitive categories in terms of price are: Consumer electronics (36% of products experienced a price change in Black Friday week 2018) Toys (28% of products experienced a price change in Black Friday week 2018) Baby (27% of products experienced a price change in Black Friday week 2018) Health and Beauty (27% of products experienced a price change in Black Friday week 2018) There are also a few categories that are showing significant upward trends. Shops in the Sports, Travel, and Outdoor categories will quickly pass this threshold as well. It’s impossible to keep up with these price change frequencies if you don’t use some form of pricing automation tool. More companies realize this and switching over to dynamic pricing as a result. Final thoughts Black Friday might not seem worth all the trouble. But when you use data to build strategies that serve your company’s goals, the retail holiday offers the potential for excellent sales growth.
17.10.2019
4 Things to Know About Data Quality in Dynamic Pricing
There’s a saying in the data science world: “garbage in equals garbage out.” In other words, the data you feed any algorithm determines the quality of the algorithm’s output. And while this is true for all data science,...
There’s a saying in the data science world: “garbage in equals garbage out.” In other words, the data you feed any algorithm determines the quality of the algorithm’s output. And while this is true for all data science, it’s especially pertinent for dynamic pricing algorithms. Dynamic pricing tools are like any other algorithm: they need great data as input to to give you a great pricing output. What you put into a dynamic pricing solution matters and has a colossal impact on the price advices it creates. If you have bad competitor data that isn’t up-to-date, for example, then the tool will generate equally bad price advices. But what data do you need, and how do you ensure it’s at a high enough quality? Here are four key things you need to know about data quality in pricing. 1. You need both internal and external data How much data does a dynamic pricing tool need? The answer is: a lot. The first (and most obvious) type is the competitor pricing data. This is the price that your competitors advertise their products as on different online shopping channels. We’ll cover this more in the next section, but it’s important to have this data so you can keep your prices aligned with the overall market value. But just getting competitor pricing data isn’t enough to have a profitable dynamic pricing strategy. You also need to incorporate internal information like your purchase price and stock levels for every product. Without this internal data, you risk advertising a price below your purchase price, for example, and can lose out on margin as a result. This internal data shifts frequently for every product in your assortment, so you can’t plug this data in once and forget about it. If you do, the dynamic pricing tool will continue to make decisions based on flawed data, like old purchase prices or incorrect stock levels. While having some data is better than having no data, improperly managed data creates risks for suboptimal prices. 2. Competitor pricing data comes from two sources Competitor pricing data comes from two places in two different formats. First, the data comes either from comparison shopping engines or directly from your competition’s website. Each of these sources has its pros and cons. Comparison shopping engines are a great place to start because you can estimate the market value of every product. As a marketplace, CSEs give you perspective about how your competitors interact with other market players. With CSE data, you can deduce your competitor’s strategies. You might notice, for example, that Competitor X always prices 10% lower than Competitor Y in electronics products. CSEs give you perspective and show you accurate prices for a variety of competitors in one go, but your competitors also won’t advertise every single product in their assortment on a comparison shopping engine. If you want to make sure you match on every product — and get data like stock levels — you need to go a step further and scrape directly from competitor websites. Second, the format of that data can either be in a URL or a Global Trade Item Number, better known as a GTIN for short. Most often dynamic pricing tools will work with product URLs to match products. Your team will need to keep an accurate database of URLs for every product across every competitor website or CSE, and will need to check the links repeatedly to make sure that the URLs are functional and accurate. If the link breaks and your team doesn’t pick up on it immediately, the dynamic pricing engine won’t find or match that product. Most teams don’t have the manpower to keep up with the work required for URL matching. It’s stressful to manage because teams need to devote their limited time and energy to maintaining the URL for every product in their assortment. And when you have hundreds of thousands of products and only 8 hours in a day, resources get directed (understandably) to the high-runner products that sell frequently and are highly elastic. But in this scenario your long-tail products get lost and left behind. URLs break, and nobody notices. Your dynamic pricing tool isn’t able to find products and update prices. Your company loses money. That’s where a product’s Global Trade Item Number, also known as a GTIN, comes into play. With GTINs, just provide the software with this unique 14-digit code for every product in your assortment. The software can then scan the market for those codes and match prices based on this factor. In our experience, we’ve discovered the best way to balance hundreds of competitors and thousands of products is to use a mix of URLs and GTINs. In this blend, you use the main URL for your competitor’s website (such as www.CompetitorName.com), then use GTIN codes to search the website for your products. This means you only have one URL to track per competitor, and it’s a URL that is unlikely to break or change. This makes the data collection process somewhat more expensive, but it also means your data is consistently high quality and accurate. And the monetary investment in a proper data collection solution up front is typically less than the costs incurred from unmatched products, frustrated teams, and retroactive data validation. 3. It’s hard to get competitor data To get competitor or market data, your tool needs to go through a “scraping” process. A tool called a spider will “crawl” the internet and find the information you’re requesting. Your competitors know that you use a spidering tool to get information from their website. And they’re starting to make it more difficult for crawlers to extract that information. How, you ask? One example is by blocking IP addresses entirely. If your crawler uses an IP address to view a website, you leave a trace of your presence with your competition. If your competitor’s website notices the same IP address returning too frequently, it will block that address. To overcome this, crawlers often use multiple IP addresses to reduce the dependency on one single way of gathering the data. But this isn’t the only way competitors will try to prevent you from gathering pricing data. Crawlers are built to gather information from a website’s design. If that design changes significantly it will confuse the spidering tool. For a properly functioning spidering tool, you need a team of people monitoring the e-commerce landscape and updating the tool when these kinds of defenses are put into place. 4. There are a lot of vendors selling bad data. Data collection is an insanely popular and high-demand industry at the moment. Every retailer and brand wants to understand the internet marketplace, and are willing to pay something for that information. Entrepreneurs know that. And they want to capitalize on it. As with many things, that too-good-to-be-true price is just that: too good to be true. To offer data at an astonishingly low price, vendors skip out on some vital safety checks that keep your data clean, organized, complete, and up-to-date. Some cheap data sources might cut corners like: Automatic updates several times per day Scraping from both comparison shopping engines and competitor websites The use of GTINs in addition to URLs to reduce manual labor Proper tooling designed with your competitor’s defenses in mind System updates and maintenance Consistent development time to improve data collection Extra quality assurance checks for both internal and external data Without all the above in place, the price advices the dynamic pricing tool creates won’t be as powerful (or accurate) as they could (and should) be. And without consistent development to improve the data collection, a dynamic pricing tool will quickly become obsolete. Low-quality data is also easy to spot. For many of our customers who come to us with pre-existing data sources, the super users of dynamic pricing tools already knew the data was flimsy. They didn’t trust the price outputs that the system created, and the whole dynamic pricing tool was a waste of an investment up to that point. Here’s the thing: proper data collection is, by itself, somewhat expensive. But that’s because there is a ton of work that goes into making sure the data is reliable and usable. Quality assurance checks. Regular testing. Rigorous evaluations of suppliers. And more. When you pay more for data and use a quality validation process, you can trust the input that goes into the dynamic pricing tool...and therefore trust the output as well. Your team can relax knowing that the price advices the tool creates are based on accurate market data and understandable business rules. Final thoughts If there’s one thing to take away from this blog, it’s this: you can get the data you need for cheap, but there is zero guarantee on the quality of that data. Quality data collection takes time, energy, and investment, but the peace of mind it brings (and the price optimization capacity), are well worth the cost. Is validating all this data worth your time? Absolutely, because without it your dynamic pricing system will be more of a hindrance than a tool. But is it worth investing time and energy (and money) to develop the tools to validate this data in-house? Well...that’s up to you. As a retailer or brand, you want to sell your products. That’s what you’re good at, and it’s what you enjoy doing. The purpose of dynamic pricing is to help you achieve that goal by positioning yourself correctly in the market. But is dynamic pricing your only responsibility? No. You’re also in charge of procurement, purchasing, marketing, strategy, innovation...the list is endless. To be honest, your time is better spent focusing on your company’s goals — not worrying about the small (but extremely important) details that could make or break dynamic pricing. It’s much easier (and profitable) for you to outsource that task to an entity that focuses specifically on dynamic pricing and can do all the quality assurance for you. If you’re curious how Omnia can help you do that, reach out for a chat. We’re happy to discuss data with you at any point. PS - Already using a data provider and don't want to double up on costs? No problem. At Omnia you can connect your existing data provider to our system, have the data checked, and enrich it with data from our trusted partners. Interested? Reach out today to ask our team how it works (and try it free for two weeks). Click the button below to get started.
23.09.2019
What Makes Omnia Different: Customer Success
Your business is constantly evolving, and the tools you use should evolve with it. At least, that’s the theory. But in many cases, you might find that your software-as-a-service doesn’t adapt as quickly as you do....
Your business is constantly evolving, and the tools you use should evolve with it. At least, that’s the theory. But in many cases, you might find that your software-as-a-service doesn’t adapt as quickly as you do. Customer Success - the idea that a company should help customers achieve their ever-evolving goals - helps software vendors keep pace with their customers and deliver value at every step of the way. In this post, we’ll explain a bit more about Omnia’s Customer Success mindset, and detail the ways we’ve built our team around you. Why is customer success important? When you buy a software service, the tool is supposed to make your life easier. But with many softwares (like Dynamic Pricing, for example), the tool setup is actually quite complex. The tool can quickly become a daily battle that you need to fight every single day if you don’t have any guidance for how to use it. And in many cases, if your business goals shift or change, it’s a hassle to change those goals within the tool. Customer success removes the fight with the tool, and enables you to use the software to its full capacity. A Customer Success Manager is more like a coach than anything else: they check in with you, guide you through the process, encourage you to try new things, and support you in your journey. How does Omnia do Customer Success? Omnia’s Customer Success program is broken into four tiers: Onboarding, Customer Success Management, Knowledge and Strategy, and Customer Support. Onboarding The starting phase of using a dynamic pricing software is crucial period to deliver value. With a dedicated Onboarding phase, our goal is to help you do just that. Omnia’s Onboarding is unique because it’s highly personal. During this period of approximately two to three months, you’ll explore the tool, translate your pricing strategy into pricing rules, ensure that the software is set up with all the proper technical requirements, and more. But, most importantly, you will learn how to use the tool yourself with the assistance of a dedicated Onboarding Manager. Your Onboarding Manager will coach you through the ins and outs of dynamic pricing and help you feel comfortable with your strategy before you go live with your new pricing tool. Customer Success Management At the end of the Onboarding, you’ll be introduced to your Customer Success Manager (CSM). Your CSM is responsible for helping you achieve your goals within Omnia, even as they evolve over time. To do this, your CSM will conduct regular EBRs, Executive Business Reviews, to see whether your current pricing strategy matches what your system is doing. For the most part, your CSM will be your main point of contact within Omnia. They’ll reach out regularly to see how you’re doing, and will be the person who informs you of any major product updates or changes. Knowledge and strategy At Omnia, we have a lot of expertise on pricing, marketing, and our own tool. But as a software company, we don’t have the ability to provide this knowledge on a one-on-one basis to every single customer in our system. But since our goal is to democratize knowledge on pricing and marketing, we’ve created a couple of different ways in which we can share our expertise. The first is our Knowledge Base, which is accessible to our customers. This is a handbook written by our Consultants, Product Specialists, and Product Managers on how to get the most out of the Omnia tool itself. It’s a go-to spot for our customer base to find answers to their questions about the tool itself. In addition to the Knowledge Base, we also have a Blog and Resources center. These are where you’ll find podcasts, articles, e-books, whitepapers, and reports about all things pricing. It’s the hub for all of our advice about strategies and market trends. If you need additional support from Omnia, we also have several consultants in-house available to help you translate your strategy into pricing rules. Customer support The final pillar in our Customer Success model is Customer Support. Customer Support is different from Customer Success Management for a few reasons. The largest, however, is that Support is reactive rather than proactive. Where CSMs reach out to you and are focused on your long-term goals, Support is here to help if you ever encounter a problem within the Omnia solution. However, our Customer Support is not just a call center to handle customer complaints. Instead, its staffed in-house with Product Specialists who know every nook and cranny of the Omnia product. When you call the Support line, you’ll connect with someone who will do everything in their power to help you. Final thoughts Customer Success is a philosophy that puts the customer first across all areas of the organization. At Omnia, we’ve built our entire team around this mindset, and have a service designed to help you get the most out of dynamic pricing. Curious to learn more? Check out this podcast from our Vice President of Customer Success Haiko Krumm.
09.09.2019
How Reference Pricing Keeps Your Private-Label Products Agile
For most products sold across multiple retailers, the process for dynamic pricing and market monitoring is relatively painless. All you need to do is provide the GTIN code for these items, then your dynamic pricing...
For most products sold across multiple retailers, the process for dynamic pricing and market monitoring is relatively painless. All you need to do is provide the GTIN code for these items, then your dynamic pricing system can search the web for that GTIN code. And while you probably have plenty of these “matchable” products — products from different brands that you can “match” based on GTIN codes — what do you do about the private label products you produce and sell exclusively in your stores? When the system can only find the GTIN for a product in one store, how can you make sure the price of that product still stays as agile as the market? This is where reference pricing becomes a crucial part of your dynamic pricing strategy. And if you’re a retailer who sells these products, this post is for you. Keep reading to learn more about reference pricing, how to implement it in your dynamic pricing tool, and how to reap the benefits of this powerful tactic. What is reference pricing? A reference pricing strategy uses the prices of similar products on the market to help you determine the price for your private-label products. If your company sells private label light bulbs, for example, which can’t be found elsewhere on the market, a reference pricing strategy lets you monitor the market prices of similar light bulbs across other retailers so you can adjust your price to market levels. Why is reference pricing important? Any retailer who creates unique products in-house can use a reference pricing strategy. And the benefits are numerous, such as letting retailers: Sell more private label products Keep private-label products competitive online Protect brand image and online price perception Control market positioning for private-label products Keep price in line with relative value towards comparable products In short: it’s a sensible strategy that lets retailers (and brands, in some cases) manage the prices of their private-label items online. How does reference pricing work? Reference pricing starts with deciding which products on the market are most similar to your private label products. If you make a smart light bulb, you will need to decide which manufacturer produces a lightbulb that is most similar to yours in terms of features and overall value. This is the hard part because it requires a certain amount of manual labor. But once you determine which products are most similar to your own, the process becomes much easier. All you need to do in your dynamic pricing system is link your product’s GTIN codes to the other product’s and determine how you want your private-label item to relate to this product. Your pricing system will then follow this branded product one-to-one, and whenever the price changes on that branded product it will update your own product price. Some systems (like Omnia) will take it a step further and even update your product prices automatically. This saves you the stress of manually doing the price updates and makes sure your products are constantly aligned with the branded product online. How to set up a reference pricing strategy Creating a reference pricing strategy is relatively easy, but it does require a certain amount of “grunt work” before you can fully benefit from the practice. Though we briefly described how reference pricing works above, in this section we’ll dive deeper into the steps you need to go through for a successful strategy. Step 1: Determine which branded products are most similar to your private-label products, and collect the GTIN codes of these products To start, you need to uncover which product you want to use as the reference point for your private-label price. This is the hardest part of the process because it involves manual labor. Think about what your product does. Consider your product features. If you have a private label smart light bulb, features you might consider are: The type of bulb Light power Energy efficiency Average lifespan Number of colors Security Connectivity Weight Size Voltage The more specific you can get, the better. The above list is by no means exhaustive for a lightbulb manufacturer, but it does provide a good starting point for determining the important factors that you’ll compare your product on. Once you’ve decided which features you want to use as a reference, you need to go through competitor products to determine which one is most similar to yours. This will be your reference product. Once you know which item will be your reference point, you can find the GTIN code for that product. Step 2: Determine the value gap between products After determining which branded product you’ll use as a reference point, you’ll need to decide how you want your private label product to relate to it in terms of price. For example, say you want your private label product to be seen as the more cost-effective alternative to a name-brand product. You’d then obviously price yourself slightly lower than the reference product. But the degree to which you price yourself lower depends on your commercial strategy, the nature of the product itself, and the capabilities of your dynamic pricing tool. Read more → How to Build a Pricing Strategy To decide this, you’ll want to get all relevant product stakeholders in the room. Here are some questions to help facilitate your discussion. What is your commercial strategy? What is your desired price perception? How does your goal price perception relate to your reference product’s price perception? Step 3: Create pricing rules in your dynamic pricing system So you’ve determined your reference product and how you want to appear in the market relative to that product. Now you need to turn those ideas into concrete rules in your dynamic pricing tool. Every dynamic pricing tool will be slightly different in this approach. If you already have a software provider, you should ask the company how to set this up. If you’re still shopping around for a solution, this is something to consider in your purchasing decision. Step 4: Implement, test, and improve your strategy Once your pricing rules are in place, you’re ready to go live with reference pricing! Let your system run as normal, then update your prices accordingly, whether that’s by hand our through automated price updates. Final thoughts Reference pricing is critical for retailers (and some brands) who produce their own products and want to keep those product prices aligned with the overall market. And while it might seem intimidating at first, after the initial task of deciding on your reference prices and setting pricing strategies, your dynamic pricing solution can easily manage your prices. Curious about reference pricing, but want to learn more from a human expert? Reach out to Omnia today to chat with one of our consultants. Click here to get in touch today.
29.08.2019
What Do You Need to Build a Dynamic Pricing Solution?
Something we see often, especially from larger clients, is a desire to build a dynamic pricing solution in-house. The draw of keeping your pricing information in-house is obvious, and at first glance, it might seem...
Something we see often, especially from larger clients, is a desire to build a dynamic pricing solution in-house. The draw of keeping your pricing information in-house is obvious, and at first glance, it might seem relatively easy to do. But what actually goes into a dynamic pricing solution? The short answer is: a lot. If you’re thinking of building your own dynamic pricing solution in-house, we understand. But with 7 years of experience, we thought we would share some insights on what you should consider in your home-built solution. The 4 ingredients in a dynamic pricing solution No matter what sort of dynamic pricing system you want to build (or how complicated you want to make it), there are four main components in the process you should consider: The data The pricing logic The automation The user interface The first two components make your dynamic pricing functional. The second two components makes dynamic pricing a success. Data Data encompasses many different data points, both internal and external. Internally, consider product purchasing price, stock levels, sales information, and more. Each of these data points help you decide how to price your products based on known information. The most important external data source is your competitor data. You want to understand which competitor is selling the same product against what price and with what kind of delivery costs and times. This data can come from a variety of sources, such as scraping data directly from competitor websites or via comparison shopping engines. Collecting this data sounds easier than it actually is. To have a full overview of the markets, you need: Connections with multiple data suppliers (the more the better), for a complete understanding of your market An internal data collection program for collecting purchase price, stock levels, marginal and logistical costs, product lifecycle, and more The knowledge to understand what that data means for your business The technical ability to validate data and ensure quality Data suppliers are especially important, and the general rule of thumb is the more connections you have, the better. Sometimes one data source can’t match all GTINs and you need to supplement it with another. Ideally you will get data from two sources: direct scraping data from competitor websites for accuracy, and comparison shopping engine data to understand where your competitors are advertising. Rates for data partners (like scrapers) can be expensive, and going with a cheaper partner will cause data quality issues. And data quality is of the highest importance when it comes to dynamic pricing. You also need the ability to process that data multiple times per day, because some of these variables are subject to frequent changes. Competitor prices, for example, update repeatedly throughout the day, so it’s easy to fall behind the market. Pricing rules and pricing logic Once you have a dataset of all your competitors and internal data, it’s time to make decisions about how you want to react to changes in the market or changes in internal variables. In a dynamic pricing tool, these decisions can be made by pricing business rules or by more advanced predictive algorithms. We’ve seen that a combination of both works best. The collection of all these rules and algorithms forms your pricing strategy. Pricing rules, at their core, tell your dynamic pricing module how to act in a given situation or when a data variable changes. Some examples of simple pricing rules are: Always be the lowest price on the market by 5% Always be the highest price on the market by 5% Match Competitor X’s price In reality though, your pricing rules will get more complex than this. You can follow a group of competitors, use historical data and past performance to calculate new prices, and even include weather information to react to sudden changes in demand in the market...there are a lot of opportunities! Your tool should use these rules to suggest “price advices” for every product in your assortment (or any product that you run through the dynamic pricing software). Your team should trust these price advices, understand how the tool calculated the price, and be willing to use those prices without a second thought. You can build pricing rules and pricing logic, but doing so requires some imagination. You need to think about your entire strategy upfront, then ask your IT department or BI team to build rules for every situation. Once they build these rules, you’ll have a library at your disposal. It is key that a particular pricing strategy can be applied to each subset of your assortment, as different commercial strategies can apply for each part of the assortment (for example, a year round electronics category vs. a seasonal garden category). However, building these pricing rules does take time because they are so complex, and your development team needs to build them in a way that’s also easily explainable. If these rules are not transparent, your pricing teams won’t trust the price advices. Additionally, once you implement those rules there is one element you can’t control: how the market will react to your changes. Your system needs to be smart enough (and agile enough) to use these reactions in future price updates. Automation The first two steps of the process are crucial to getting a price advice that you trust and which reflects your overall commercial strategy. But for a system to truly add value, you need to automate all price changes. The first point for automation is the data collection, specifically the competitor pricing data collection. Competitor prices change continuously and you need to be able to adapt over your full assortment without any manual steps. Manually validating price checks cost pricing teams as much as 10 hours per week per person, and the work is tedious. You should automate this part of the process to not only save time, but to also improve the overall working life for your team. You also need to automate price updates to your online store. After your software calculates the new price advices, it can upload those prices into you e-commerce platform that displays the prices on your website, comparison shopping engines, or even electronic shelf labels. This automation step also saves crucial time and allows your store to stay agile as the frequency of market changes increases. Data validation Automation is obviously an important part of the dynamic pricing system. To get the most out of dynamic pricing, you should automate your entire process, from data collection to price updates. If you don’t automate the entire process, you’ll quickly fall behind the market. But doing so removes the points for manual data verification and validation. Data validation is a crucial aspect that makes pricing automation a success. Without it, your team won’t be able to trust the recommended prices or use the insights to build more profitable strategies. So before you begin with automation, you need to trust the system completely with your pricing data, and feel comfortable that your shop is safe. And to do that, you need to build data validation into the system, and go thorugh comprehensive data validation tests that let you evaluate the entire chain, from input to export. Some areas to ensure safety include: The consistent quality of the data you import into the system. How will your dynamic pricing tool access high quality data? Price advice boundaries. What is the maximum or minimum price acceptable for each product? Failsafes. What should the system do if the chain breaks? Building a basic infrastructure for data validation is difficult, but not impossible. But the reality is that if you want to build an agile system where pricing rules can easily be added or changed, the data validation process quickly becomes complex. User experience and interface Up to this point, we’ve focused on the back end of the dynamic pricing tool. But now it’s time to think about the daily use of dynamic pricing. How can you encourage the adoption of dynamic pricing and make it an integral part of your teams’ workflows? The answer lies in the user interface of the portal you build to manage the dynamic pricing system. You can’t discount the value of user design and experience, and it might even be the biggest barrier to adoption beyond building a platform. Your end user is your pricing and category managers. From an interface perspective, there are two goals to help them : Give the end user insights that make their job easier Allow the end user to continuously iterate on the strategy without the barrier of IT Insights give your end users confidence in the tool, as well as the information they need to build better pricing strategies. These insights will help your team react to market trends, for example, or quickly respond when a competitor runs out of stock on a popular product. Pricing and category managers should also be able to use the tool freely and make changes to pricing rules as needed. They should be able to do this without calling in development or your BI team every time they want to make an adjustment. Additionally, design makes a difference. While the interface doesn’t need to be pretty, the better designed it is, the easier it will be to use. To build a proper that suits your user’s needs, you can hire consultancy agencies or do your own internal tests with your team. IT investment for dynamic pricing So how much time and labor does it take to build a proper dynamic pricing solution? A conservative effort is 1-2 years for a team of developers, and it takes work from both IT and the business side of your company. This period will result in the minimum viable product for the data collection system, establishing the pricing rules, building price advice algorithm, portal, and a repricing tool (if you choose to automate your repricing). Building the infrastructure for dynamic pricing is a time-consuming and laborious task. However, this two year period is just the start of the journey: you also need IT and development resources to maintain the tool after you’ve built the infrastructure. And for the tool to stay relevant and useful, you need to invest development time into iterating and improving the tool continuously as business demands change. So the short story is that your dynamic pricing tool requires a significant investment from your developers in house. And as Berend van Niekerk says in Episode 5 of Price Points: That's a lot of work. And for every company the I.T. resources are really scarce. So then it's a question — do you want to invest four or five developers full-time into building dynamic pricing system? Or do you want to invest those guys into building your e-commerce platform or anything that's important for you or for your everyday sales? That question is one that you can only answer for yourself. Final thoughts Building a dynamic pricing software is a much bigger beast than most companies expect. It requires significant investment in time, energy, and money, and is an ongoing process that you need to continually maintain and update. Now, that doesn’t mean you can’t build your own tool in-house. And for some companies, that might be the best choice for you. But there are tradeoffs to consider — namely in the development capacity you need. In many cases, a third-party dynamic pricing solution makes more sense economically, and it also allows your development team to focus on what really matters: your e-commerce platform.
05.07.2019
Why Dynamic Pricing is Less Risky Than You Think
Dynamic pricing does come with some risk. But that risk isn’t actually all that big. In fact, compared to the rewards that come with dynamic pricing, the risks seem comparatively small. And with proper preparation,...
Dynamic pricing does come with some risk. But that risk isn’t actually all that big. In fact, compared to the rewards that come with dynamic pricing, the risks seem comparatively small. And with proper preparation, safety features, and support, you can easily limit (and in some cases eliminate) the amount of risk you take. Curious? Keep reading to learn why dynamic pricing is much less risky than you think. What are the risks associated with dynamic pricing? In our experience, customers are most afraid of a couple of key things before they start their dynamic pricing journey. The first major fear is the chance of a race to the bottom, which involves the vicious cycle of competitors lowering prices until the market crashes out at a price point of close to 0. This fast descent into profit loss looms over the minds of many executives and directors when they first confront dynamic pricing. This is a risk, of course, though it’s one that’s largely controlled by proper safety checks within your dynamic pricing system. No matter which dynamic pricing software you use, you should make sure the algorithm has limits that are easy to understand and set up. You should then install those limits on every product, and properly test these limits before launching. When done correctly, these limits help you avoid a race to the bottom with dynamic pricing. Secondly, there is the risk of handing your entire pricing system over to a fully automated software, especially if you don’t fully understand how the software works. Many people feel that automation in general is a sort of “black box” where you don’t know what’s happening behind the scenes. In some ways it’s sort of like a computer. The vast majority of people use their computer for a very specific purpose that’s relevant to their job, emailing, surfing the internet, gaming, etc. Most of us don’t understand the complete inner workings of the computer, and likely don’t know how to get the full potential out of the machine. This isn’t a bad thing, of course, it’s just the reality. We trust the computer to do these things for us, and also know that if something goes wrong, the stakes are relatively low. If you don’t understand the back end of an electronic word processor works, it won’t cost you your job. Dynamic pricing is a little different in that if you don’t understand it, the potential to lose your job or tank your profits is higher. The potential for disaster is greater and affects more than just a single person. Again, automation does present a risk, but proper safety checks and setup neutralize the threat.One easy way that we at Omnia help you understand what’s happening behind the tool is with our “Show Me Why” button, which details the logic behind every pricing decision. This makes sure you can explain every action that the tool took to arrive at a price. Risk of change Ultimately, the biggest risk by far with dynamic pricing is founded in a fear of the unknown. Most companies know that dynamic pricing will transform their operations across multiple departments, and this change is understandably scary. What happens when you ask your employees to change their way of working completely? How long will it take for your organization to get used to dynamic pricing software? What if the return on the investment takes longer than expected? These fears are completely valid, and like all fears they tend to be the loudest voices in our heads. But with proper planning, preparation, guidance, and tools, dynamic pricing can catapult your company into a more profitable future. The rewards of dynamic pricing Dynamic pricing software is more than just a software. It’s an opportunity to move your company squarely into the modern era of e-commerce with a clearer roadmap for where you want to go. Here’s the thing: dynamic pricing is a tool that you control. You have full jurisdiction over how it works, and control the risks within it. And you can’t use the tool properly if you don’t fully understand what your commercial objective is, how that commercial objective translates into a pricing strategy, and how to execute that pricing strategy effectively within your chosen tool. If you don’t take these steps before buying into dynamic pricing software, you won’t get the full value of the tool. That’s why our most successful customers - the ones who thrive in our system - use the implementation of dynamic pricing to evaluate their company goals and build a better plan for the future. When they do this, the first thing most see is more time. On average, our customers save about 10 hours each week within the first quarter of using Omnia. As each customer grows comfortable with the automation, they hand over more of the robotic, tedious tasks to our software. And while this saved time is an excellent benefit, it isn’t really the time that matters. It’s the ability to use that time to focus on building a better strategy that moves your company towards your goals, whatever they may be. For customers who are the first in their category to implement a dynamic pricing solution there is also a first mover advantage. The companies who are the most successful with technological innovation are the ones who move the fastest and make the largest investments in the sphere. These companies are not only able to get a grip on the technology before the competition, but they can also adopt future innovations much more easily because their systems are primed for it. The reality is that dynamic pricing is on most retail company’s radar. But that doesn’t mean you can’t reap the benefits of acting quickly. How to have more reward and less risk Moving from dynamic pricing may seem risky, but the rewards far outweigh the chance of failure. And the risks of dynamic pricing can be largely minimized with proper planning and preparation. So, how do you get more reward with less risk? We’ve rounded up our top 6 tips. First and foremost, you should be realistic when it comes to the adoption of dynamic pricing. Most retailers are beginning to adopt the practice, so the longer you wait, the further you’ll fall behind your competition. This brings us to our second tip: get started early, and look beyond your pricing department as the only one that can improve with software. When planning for dynamic pricing software you should make sure that all relevant stakeholders are at the table for all relevant discussions. This should include individuals from your purchasing, marketing, operations, and pricing departments. Third, you should go back to the basics. With Omnia, there are five key steps to successfully implement dynamic pricing, and the first three (which are arguably the most important), don’t involve the software at all. These steps involve revising your commercial objective, then defining a pricing strategy and pricing methods based on that objective. Only after you have a strategy and methods in place can you start translating these into business rules in your chosen software. To define your commercial objective and pricing strategy though, it pays to have outside help. That’s why our fourth tip is to hire a consultant to coach you through the process and give you clear direction. If you’re curious who Omnia trusts to help you through these steps, you can take a look at our partners page. The fifth tip is to start small. You don’t need to automate your entire store from the start. Start instead with one product or category, learn how the tool works, and eventually you will be able to add in more complex strategies. Finally, the sixth tip is to find the right tool for your business needs. Omnia is one of these tools, of course, and we’ve designed our Dynamic Pricing module to lower risk and elevate reward. You can also add in our marketing modules to get a complete overview of your entire online presence. But what really makes Omnia special is our Customer Success approach, which gives you a whole team dedicated to making your dynamic pricing journey a success. From the start you’ll go through a complete onboarding process that teaches you how to use the tool and work with consultants to set up the proper pricing strategies. After you learn how to use the tool, a Customer Success Manager will conduct quarterly review sessions to show you how you can get even more value out of the software. And of course, if you have any small questions in between, customer support is available. Final thoughts To have a big reward, you need to take some risk. And while there is a risk with dynamic pricing when it is implemented incorrectly, the proper safety measures (and the right people to show you how they work) can all but eliminate that risk. When you have the right preparation and process and a team to help you set up, dynamic pricing software is actually a low-risk, high-reward endeavor. If you’re interested in seeing these safety measures for yourself, sign up for a free two-week trial of Omnia today and see how Omnia works with you to make dynamic pricing a success. Click the button below to get started.
21.06.2019
How Brands can Differentiate their Assortments for Better Relationships with Retailers
Whether you are transitioning into the direct-to-consumer (D2C) sphere, or simply want to build a better relationship with your retail customers, your assortment is the key to making your brand stand out from the rest...
Whether you are transitioning into the direct-to-consumer (D2C) sphere, or simply want to build a better relationship with your retail customers, your assortment is the key to making your brand stand out from the rest of the competition. In fact, it’s the ultimate do-it-all tool that helps you build a better brand experience, get consumer data, improve your relationships with retail customers, and more. But how do you make your assortment the ultimate tool in your toolbox? In this post, we’ll explore differentiated assortments — what they are, how brands can use them, examples, and more — and give you some actionable tips on building assortment strategies that make your brand shine. Curious? Keep reading to learn more. Why should brands differentiate their assortments? Differentiating your assortment is a way to manage your relationships with retailers and consumers at the same time. At its core, the strategic move to differentiate your assortment will help you build better relationships with your retail customers through strategic partnerships and clear expectations of who makes sales in which channels. Differentiating your assortment is also beneficial when you open a direct-to-consumer channel. Opening a direct-to-consumer line has numerous benefits, but it also creates friction between your brand and your biggest customers: the retailers who buy your products from you and sell them to consumers. If you sell the exact same products as your retail customers, it’s easy to see the reason for tension. If you price yourself lower than the market average, you effectively undercut your retail customers. And while that lower price can earn you more sales through your D2C channel, you risk damaging overall price perception and your relationship with your customers. But differentiating your D2C assortment from what you sell to your retailers reduces channel conflict and protects your relationship with your biggest customers. How brands can differentiate their assortments There are 3 specific ways that brands can differentiate their assortments, depending on your end goals. 1. Build unique SKUs Best for: Brands with strong retail partnerships and connections. One way to differentiate your assortment is by leveraging your relationship with retailers. In this strategy, you’ll build a unique SKU to sell through retail channels and forge a strategic partnership with retailers as a result. With unique SKUs you can: Build better relationships with retailers Enrich your own market knowledge with retailer insights Reach consumers through channels they already know and understand In this setup, you can still control your brand image, but you also build a strategic partnership with a retailer who has demonstrated an excellent ability to sell your products. The retailer will be more likely to share their market knowledge with you to build a more profitable relationship. There are two ways to go about using unique SKUs to your advantage: 1. Unique SKUs for particular market segments The first way to use the unique SKU strategy is to focus on a particular market segment. If you know a certain segment of the market is more likely to buy certain features, you can build a model of your product specifically for that market segment. You can then push that product through retailers who cater specifically to that segment and who have a history of high sales. Say you sell notebooks, for example, and notice that the red version of a particular model sells especially well on a certain retailer’s webshop. You can use those insights to create a unique version of the notebook that consumers can only find in that retailer’s store. This strategy is a win for both your brand and the retailer. Ultimately, the main benefit of this channel, beyond more sales, is a strengthened partnership. The retailer will get a unique EAN code that is difficult to match, and can also leverage its connection with you to boost its own market image. They will also earn more sales and become the go-to retailer for this target segment. A great example of a company that does this is Miele. According to Hidde Roelaffs-Valk, one of our consultants here at Omnia, “That was one of the things I saw [while working at Simon Kucher and Partners as a consultant for Miele]. They would make a special product, a special SKU for specific retailers where maybe one feature is added or the color is a bit different.” Miele taps into their retail customers’ knowledge bases and analyzes what consumers are buying through each retail channel. If they notice a strong pattern or trend, they will create a special SKU for that specific retail that has the features that consumers on that specific site tend to choose. 2. Unique SKUs for a limited time at high quality retailers You can also create a SKU that is available through a selective partnership with one retailer for a limited amount of time. An example of this might be a food item that comes in limited flavors and which are only available at certain retail locations, whether they are a physical brick-and-mortar store or an online retailer. You don’t need to keep your SKUs limited to that specific retailer forever. You can also stipulate that you will roll the SKU out to the larger market after a certain period. In any case, your original partner will get the first-mover advantage and become known as the place that sells that version of your product. 2. Embrace mass personalization Best for: Brands selling high volumes of stock with relatively low costs for production alterations. Mass personalization means you give consumers the chance to customize their product offers directly through your website, while leaving retailers the chance to sell the more “generic” versions of your product in-store. The benefits of the strategy are numerous. For one, it lets retailers do what they are best at: selling to the masses. This keeps your biggest customers happy, while also opening up a direct line to the consumer market. With mass personalization you can: Talk directly with consumers Gather more interesting (and specific) consumer data Exert more control over your brand image Build a better relationship with consumers Maintain relationships with retailers The best examples of mass personalization come Nike, which allows consumers to make their own products on an easy-to-use website, while they sell generic shoes through their retail outlets. The company is successful in this because they have some great manufacturing processes which make it possible for consumers to order shoes in specific colors and styles and receive them in two weeks. D2C differentiation isn’t just for brands with tons of money though. You can also look at smaller companies and see the same principle in place. An example of a small company doing something similar to Nike is Doppr water bottles. You can go into a store and buy a plain Doppr bottle, or you can order one online that’s customized with your name, logo, or design. 3. Provide a different service Best for: Brands in the Fast-Moving Consumer Goods (FMCG) space whose products have a plethora of alternatives. If your products can easily be replaced by a different brand’s offering, it can be hard to stand out in the market. Differentiating your product based on color or the materials can help, but in many cases it’s just not enough. This is where differentiating your brand based on additional services is especially useful. With a service differentiator you can: Stand out from the crowd Disrupt the traditional D2C channel Create a unique brand experience Foster your relationship with local retailers and service outlets Gather more consumer data There are a few ways to do this. Subscription models are on the rise in the FMCG space, with companies like Harry’s Razors and the Dollar Shave Club disrupting the traditional razor blade market. Philips also did something similar with their razor and shaving category. The company had an electric razor for women which was a great success and highly coveted, but the high cost of the product created a barrier for many women who wanted to buy. Philips decided to adopt this monthly subscription model for the razor and gave women the product for a low monthly payment. After several months of payment, the consumers would then own the razor outright. Sales exploded because people were able to afford the lower monthly payment instead of the high upfront cost. Subscription models are also on the rise in fashion, whether it’s from the brand itself offering a monthly subscription plan to receive more products or through some sort of monthly boxed assortment. If the subscription model doesn’t sound right for you, you can also think about product maintenance as a way to differentiate your assortment. This can be done in your physical stores, or through strategic partnerships with local repair and maintenance companies. This model can work for a variety of categories, from offering free in-store tailoring services for fashion or discounted repairs at local experience centers. Can price be a differentiator? When it comes to your D2C channel, price can be a differentiator, if you wish. But you should be strategic about it. Undercutting your retail customers not only hurts your relationships with your biggest customers, but it also undermines your brand price perception. So if you want to use price as a differentiator for your assortment, there’s one key thing to remember: your price should differentiate you from other brands selling similar products, not the retailers selling your products. In other words, your price should follow the retail market, but stand apart from your direct brand competition. To keep your prices aligned with the rest of the retail market, you need to follow the market and update your prices multiple times per day. But following the market takes significant time and resources if you do it manually. That’s why dynamic pricing is so important for retailers who are opening their own D2C sales channels. A software like Omnia will automatically check your product prices against the retail market, meaning your prices will always align with what retailers charge. This not only protects your brand perception, but it also protects your relationship with your retail customers. Brands: increase your sales, reduce tension with retailers, and maintain your brand image with Dynamic Pricing. Curious about how to use your price as a strategic tool in the consumer market? Try Omnia free for two weeks and see for yourself. Click the button below to get started.
06.06.2019
Why are More Brands Going Direct-to-Consumer? A Special Interview with A.T. Kearney
Why are more brands going direct-to-consumer (D2C), and how can brands use dynamic pricing to succeed in this new arena? This week we have a special interview to uncover the answers to these questions. I sat down with...
Why are more brands going direct-to-consumer (D2C), and how can brands use dynamic pricing to succeed in this new arena? This week we have a special interview to uncover the answers to these questions. I sat down with three industry experts: Roger van Engelen, and Jean-Paul Savelkoul, Management Consultants at our partner A.T. Kearney, and Jasper Wiercx, Solutions Consultant at Omnia Retail, to learn about brands, the direct-to-consumer world, and more. Hey guys, thanks for sitting down to chat. Could you all introduce yourselves a bit? Roger: Hi, I’m Roger van Engelen. I’m a Principal at A.T. Kearney Benelux, specifically focused in Consumer Products and Retail industry. I specialize in several functions, such as business transformation, end-to-end cost improvement, growth strategies, e-commerce…I’ve touched a lot of different areas of retail strategy in my 12 years of being in the industry! Jean-Paul: I’m Jean-Paul, and I’ve been with A.T. Kearney for less than a year. But before working with ATK I spent 8 years at Procter & Gamble, initially as a Brand Manager covering personal care, household care and health care brand portfolios, and later as a marketing manager across the P&G brand portfolio, with a focus on new business models and digital marketing and data strategy for (e-)retailers. During my period in P&G I worked on direct to consumer (D2C) strategy, and the launch of several propositions in this area. Jasper: And I’m Jasper, one of the Solutions Consultants with Omnia. I’ve become our go-to person for brand implementation within Omnia, and am currently working with a couple of brands to get them started with our Dynamic Pricing module. Let’s start with an overarching question: why are more brands moving into the direct-to-consumer sales space? What is changing? Roger: So, to answer that question we need to go back in time a bit. Back in the 1950s product offerings and brands were scarcer than they are today. Small retail chains were also abundant, and we didn’t have these massive retailers that we have today. Jasper: Exactly. Traditionally, brands’ biggest customers have been retailers. Retailers would buy products in bulk from a brand, then sell those items to consumers. Up until about 20 years ago, brands have had all the power in the relationship. They’ve dictated how much a product should cost and how retailers should sell it. Roger: Retailers have been gaining power quickly as they consolidated significantly, and the internet and e-commerce have accelerated this change. There’s now a power struggle between retailers and brands. Retailers have more control now than they’ve had before, and brands have less influence on their products once they are in the retailer’s store. That’s part of the reason brands want to sell directly to consumers now, but it also creates uncharted territory that both parties need to navigate. So is e-commerce the sole reason this new balance of power emerged? Roger: Not the sole reason. There are also several other factors that have created disruption in the market, not just the rise of e-commerce. For example, sourcing across borders has become a bigger opportunity for retailers, which adds pressure to a historically-grown margin structure. Furthermore, retailers have made huge steps in upgrading the quality and attractiveness of their private label assortment. On top of this, with e-commerce marketplaces now allowing small players with limited distribution capabilities to sell the same way ‘the big boys’ are selling, new competition has entered the arena. Jean-Paul: You also see the rise of new business models emerging. Subscription services are a great example, and the rise of disruptive companies like Harry’s Razors in the US mean consumer packaged goods (CPGs) face a new type of competitors. Companies like Harry’s compete through the D2C channel but are at the same time listed in traditional retail channels. This means they are better equipped to optimize for shopper behavior based on their D2C platform knowledge, while also leveraging the reach of large retailers to create scale quickly. Roger: Exactly. We’re sort of at a converging point for many different moving parts in the entire retail industry. And brands going direct-to-consumer is a reaction to that. The brands need to think more creatively to ensure they add value to consumers in a marketplace where diversity of assortment and points of sale is constantly increasing. Jean-Paul: The clear winner here is the consumer. Consumers have gained knowledge, price and ingredient transparency, an abundance of choice, higher levels of service, speed, and more relevant advertising. They’ve initially lost their anonymity but are now rightfully getting back in the driver seat when it comes to their personal data and privacy. Has the internet changed this dynamic? Roger: No, internet has added a new dimension to the retailer brand relationship that is only accelerating the change already in play. The rise of private labels, which retailers can now offer due to their economies of scale, was the biggest disrupter, in my view. A strong private label assortment gives retailers the means to impact both the brands market share as price levels in a category. Jean-Paul: The internet has also given consumers new power. A completely new level of “price transparency” has emerged, which lets consumers easily compare the prices of different goods and has driven the overall price for goods down between domestic and international retailers. Consumers can openly interact with brands through social conversation, compare products more objectively and leave product reviews, which increased consumer knowledge and control. Roger: The internet and e-commerce has given retailers a huge advantage because they hold all the data on consumer shopping habits. They currently fiercely guard this data from brands, because it’s one of the retailer’s main competitive advantages. However, retailers are starting data-collaboration with brands to jointly create value. For example, there is a lot to win in making loyalty programs really personal and attractive, and collaboration between retailers and brands helps both parties make a better experience. Is this another incentive for brands to go direct-to-consumer? To learn more about their customers? Jean-Paul: Yes. In order to stand out, brands need to create a relationship with consumers. Gathering consumer data gives brands insights into the profile of the shoppers, how they use the products, how they interact on brand platforms, and how they travel through the shopper purchase journey. This enables more relevant advertising, a smoother purchase process, and, in turn, better relationships between brands and consumers. Roger: As the playing field levels out in terms of price, brands need to be more innovative in driving brand loyalty. This comes from building a relationship with the consumer. There appears to be a disconnect with a retailer in the middle though, and brands can’t necessarily dictate how a floor display should be positioned in a store, for example. Selling directly to consumers allows brands to gather more information on what buyers want, test and learn from consumers, and drive product and brand innovation from those insights. And they can use these insights to help retailers sell their product better as well. Okay, so what sort of hurdles do brands need to overcome to sell directly to consumers? Jasper: To start, there is a conflict between brands and their biggest customers: retailers. When a brand sells directly to consumers, they’re essentially undercutting their own customers, which creates a huge amount of tension between retailers and brands. Roger: Yes, I’d say that’s indeed one of the biggest problems. Brands are afraid their retailer partners will disapprove of the move as it is seen as ‘direct competition’. This makes brands very reluctant as retail will remain the biggest share of turnover by far. However, it’s a perceived channel conflict as we strongly believe both channels should be complementary What doesn’t help is that many brand owners manage their sales per channel, thus already create ‘internal competition’ between channels that is not necessarily in the interest of the of the overall brand. That makes it hard to overcome. So, how can brands AVOID channel conflicts with retailers in this new arena? Jean-Paul: There are two parts to this. First, brands should create a clear channel strategy, indicating in which channels they want to play, with clear targets and tactics to win. Within this channel strategy, smart differentiation between channels is key to avoid conflict. Roger: For example, brands can differentiate what they sell directly through their own channels and what they sell through a retailer. Brands can focus their direct-to-consumer efforts on unique SKUs that require more explanation and a more elaborate brand story. They can then let the retailers take care of selling the more generic “mass” products, which is what retailers are good at doing. This hybrid channel model means that each company can play to their strengths, but both benefit overall. However, it is key to reflect this into the trade terms (pricing and discount schemes) brands offer to their different retail partners, as this is often the root cause of channel conflicts and margin leakage. Jean-Paul: Second, brands should use leverage and share what they learn about consumers and the shopping trip to improve the shopper journey in regular trade channels as well. Retailers and brands working together to jointly grow the total category will benefit both parties. Jasper: Brands should also take this as an opportunity to evaluate their internal governance and organizational structure. It’s a chance to build a more efficient internal structure to avoid cross-channel competition. What’s the role of dynamic pricing in all of this? Jean-Paul: A brand’s number one priority in going direct to consumer is to deliver on its channel strategy. Dynamic pricing is what makes this possible. Instead of undercutting retailers, brands can use a dynamic pricing software to follow their recommended selling price, only dropping their price when all key retailers are a certain percentage below your suggested retail price. Roger: In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception. Jasper: Exactly. Retailers and brands will use dynamic pricing differently. The retailers will use it to stay competitive in the market. Brands will use the software to guard price perception and prevent hurting retail relationships. And both will use the software to make managing their online assortments easier. Okay, last two questions! First off, what are your top tips for retailers as they navigate this new relationship with brands? Roger: Retailers have a lot to offer that brands can’t access, such as a higher traffic and a larger reach. Once a retailer understands how they can help brands beyond straight sales and how they can benefit from insights from their brand’s D2C channel, they can create a powerful strategic partnership. And each side of the equation ends up happier than they were before. Final question. What advice would you give brands? Jean-Paul: Evolving from a transactional commercial relationship to a strategic multifunctional relationship is key to unlocking the potential of deep collaboration between brands and retailers. Building this relationship requires time, dedication, resources and, most importantly, knowledge exchange. When brands enter the D2C space, they should be open about their intentions, make it part of a fair and differentiated channel strategy and share insights with retailers to ultimately boost total category value. Great, thanks guys! Jean-Paul and Roger, what’s the best way for someone to get in touch with you about building a direct-to-consumer strategy, since this is your area of expertise? Feel free to reach out via LinkedIn or email. We’re happy to meet for a coffee in our Amsterdam or Brussels office. Get in touch with Roger or Jean-Paul Are you a brand looking for strategic consulting on the direct-to-consumer market? Feel free to reach out to Roger or Jean-Paul through their contact details below. Roger van Engelen, Principal: Roger.vanEngelen@atkearney.com Jean-Paul Savelkoul, Associate: Jean-Paul.Savelkoul@atkearney.com Brands, try dynamic pricing free for two weeks. See for yourself how valuable dynamic pricing is for maintaining your relationships with retailers and protecting your brand perception in the direct-to-consumer market. Try Omnia free for two weeks with your products. Click the button below to get started.
31.05.2019
The History of Dynamic Pricing in 7 Minutes (Or Less)
Dynamic pricing is nothing new. In fact, it’s been the norm for many years. But what's the story behind this pricing trend, and how did it come to define modern retail and e-commerce? In this post trace the path of...
Dynamic pricing is nothing new. In fact, it’s been the norm for many years. But what's the story behind this pricing trend, and how did it come to define modern retail and e-commerce? In this post trace the path of dynamic pricing and learn how we came to be where we are today. The historical origins of dynamic pricing Historically, prices have been mostly dynamic and consumers have haggled with shopkeepers to find the right price for a product. That price could vary a lot: if the product was in high demand and limited in stock, shopkeepers could raise the price on the spot. Conversely, if a shop owner wanted to get rid of an overstocked item, they could decrease the price to increase the volume of sales. Shopkeepers could also change their price depending on the person who was buying. If someone looked like they were willing to spend more money on a product, the shopkeeper would set the price higher than if the shopper appeared to have less money. But this system was inefficient, to say the least. And it quickly became too complicated and time-consuming to keep track of prices as businesses grew during the Industrial Revolution. For one, shopkeepers were key parts of the sales process, and businesses needed to train them accordingly. As Jacob Goldstein says on a fascinating Planet Money episode about the invention of the price tag, “If you are running a store, if you’re working in a store, you need to know a lot to haggle. You need to know how much you paid for the stuff, how much your competitors are selling it for. You need to know how much different customers are willing to pay... you couldn’t just hire some kid on summer vacation to come and sell stuff at your store.” Retailers often had apprentice shopkeepers who learned the art of haggling over a longer tenure, and it was a profession that required years of training. The “negotiation market” was also time consuming for everyone involved. Lines would grow long as shoppers waited for determine prices, and consumer resentment grew if someone two people ahead of you in line got a better price for the same product. In other words, it became too complicated to keep track of all the prices, and the system wasn‘t scalable for the industrial revolution. Retailers needed to find a new way to manage their prices…so they turned to the price tag. Invented in the 1870s, the price tag allowed companies to scale their pricing out to more complex assortments and meant that shopkeepers didn’t have to remember the price for every single product in the store. It also made checkouts faster and more fair for all. All retailers needed to do was decide about how much to charge for a product once, then apply that price to a price tag in-store. It was a return to an old Quaker model where stores would charge the same price for every product, regardless of who the buyer was. This model quickly became the standard model in retail, and it’s hard to imagine a world before price tags. For the last 150 years, they‘ve almost universally dictated how much we interact with retail stores. A post-price tag world Today, price tags are still relevant, at least the minds of consumers. Price is still the most important “P” for many shoppers, and many people don’t care which retailer they buy a product from, as long as they get the product at a good price. They also still serve a purpose in terms of scalability. But that doesn’t mean that the price tag isn’t changing, literally and figuratively. E-commerce and new technology is changing retail, and the traditional paper price tag is quickly becoming obsolete. As modern technology shapes how we buy and sell, it also has opened up the floodgates for increased price changes. Airlines were the first industry to transition from a fully price tagged world to one where the price can shift throughout the day and week. Before the 1980s, the American government heavily regulated airline prices. But that changed during the 1980s when the industry took over price-setting. At the time, former ticket clerks spent their entire day making this these price adjustments manually on computers. by former ticket clerks who spent all day changing ticket prices on computers. The price of a seat depended on a number of factors: what time of day the flight was, how close to the flight someone booked the seat, how long the flight lasted, and more, but it ultimately was the clerk who decided what the price would be according to their “gut feeling.” It was a wildly inefficient system, and the airlines lost huge amounts of money. But eventually the airlines realized they were using computers to make these changes…computers they could modify to change seat prices automatically based on known information about a flight path, not just gut feeling. So the airlines took the plunge and did what many retailers are doing today: invested millions of dollars in software to automatically update ticket prices based on a variety of factors. And it works well. This automated dynamic pricing helped pull companies like Delta out of a financial downturn. Shortly after this success, the rest of the travel industry, from hotel chains to cruise lines, followed suit. Dynamic pricing in retail When the internet made its debut in the 1990s, it started a revolution in the way we live and work. Companies invested in new technologies that would allow them to send and receive commercial and information electronically — technologies that became known as “e-commerce.” Several new companies sprang up to meet these new e-commerce demands, but folded with the collapse of the Dot-com bubble in 2000. But by 2000, the term “e-commerce” had morphed to mean the ability to purchase anything online...and retailers had noticed the obvious advantages of an online marketplace. Retailers could now expand their assortments beyond their physical store and reach entirely new audiences. Shoppers were also quickly taking to the convenience of online shopping. Amazon and eBay were the first two companies to truly push this idea of an electronic marketplace to an entirely new level. Each company found wildly innovative ways to capture the power of the internet in retail. Amazon, for example, created its Prime membership program and an affiliate marketing system to push products even further. As e-commerce grew, software technology co-evolved with it. And in some ways, e-commerce made price tags important again, albeit in a completely different way. As the e-commerce market has flattened, price has become, in many cases, the only thing consumers care about. As a result, retailers now need to battle to offer competitive prices at all times, and the market price for a product changes several times a day. Pre-internet, retailers needed to make about 4,000 pricing decisions every quarter. It wasn’t worth the energy to change prices multiple times a day to follow the market. And the market didn‘t change that often. But today, price changes happen several times a day for millions of products across an entire marketplace. And they happen instantly. (In case you’re curious, we did the math for you. It’s around 60 million pricing decisions every single day.) So this puts retailers in an awkward position. Like the airlines of the past, retailers are currently updating their prices manually. Entire pricing teams spend 2-3 hours a day simply following a competitor’s prices just to understand the market for every product in their assortment. Those pricing teams then need to calculate new prices based on their company’s strategy, then update their own web shops to stay competitive. They then need to start this process all over again to stay relevant. Physical stores also suffer from the fast pace of e-commerce, and without the proper technology retailers can easily offer two totally different prices for the same product depending on if it‘s online or in a physical store. There‘s no real way for retailers to keep pace with the new market without the help of technology. Manually managing prices requires a ton of time, effort, energy, and money…and it is still inefficient. Assortments are too big to manage, and the price changes happen too fast to keep up. That’s why they turn to a dynamic pricing software like Omnia — to get control of the assortment again. Dynamic pricing in today’s retail environment We’re unlikely to return to an era where you haggle with a storekeeper to get the best price, but we are shifting into a time where computers dictate the price through dynamic pricing softwares. Just like the airlines of the past, many retailers realize that there is an easier and more efficient way to manage their prices, and are making the necessary investments in the software technology. Sometimes retailers invest their time and energy into their own dynamic pricing method, but in other cases they outsource the work to a third party like Omnia. Omnia can help you on both sides of this. If you want to develop your own in-house solution, we can help you get the data you need for your dynamic pricing machine. If you want a complete end-to-end solution, our Dynamic Pricing module takes care of data collection, price calibration, and price adjustments for you. Curious? Try Omnia free for two weeks and see which product is the best for your company. Click the button below to get started.
16.05.2019
What is Charm Pricing?
When I was a kid, I used to love weekends because I didn’t have a bedtime. Instead, I’d stay up as late as I wanted, and it wasn’t uncommon for me to fall asleep on the couch with the television still on. But I grew up...
When I was a kid, I used to love weekends because I didn’t have a bedtime. Instead, I’d stay up as late as I wanted, and it wasn’t uncommon for me to fall asleep on the couch with the television still on. But I grew up in the United States, the land of direct-response marketing. And I’d often find myself jolted awake in the early morning hours by the still-blaring TV. At some point in the night, the channels would have switched from traditional programming to late-night “infomercials.” Infomercials, if you’re not familiar, are long-form sales commercials. They could last as long as 60 minutes, and typically followed a “tell-sell” format: someone would stand on a set and demonstrate the product for 50 minutes, typically shouting loudly about the features and benefits of the item. The most famous of these hosts, by far, was Billy Mays, and it was a national tragedy when he died unexpectedly in 2009. These demonstrations were also adopted to shorter 2-minute time slots for regular television hours. Here you can watch Billy Mays’ most famous commercial. These commercials were memorable for many reasons, most notably their outlandishness. But their prices were also catchy...so catchy that they could grab your attention from across the room and stick in your head for a few days after. Inevitably, almost every product you could purchase through these programs cost anywhere between $9.99 and $69.99. And each price always ended in either 99 cents or 95 cents. These companies were using a tactic called charm pricing (also known as "psychological pricing"), a style meant to elicit an emotional response in their consumers and drive them to action. Charm pricing relies on the belief that an odd-numbered price can trigger emotional reactions in people. It's a powerful pricing tool that isn't limited to cheesy American commercials. In fact, almost any retailer can use charm pricing to their advantage. So what is charm pricing, and is it right for your organization? Keep reading to learn more. What is charm pricing? Charm pricing is also known as psychological pricing. It’s the belief that a price can have a psychological impact. Retailers can then use that psychological influence to sway customers to buy their products or perceive them a certain way. Odd numbers are the foundation for charm pricing. The most common ending numbers are 9 and 5, according to a 1997 study, which found that these cents endings accounted for 90% of the 840 prices they analyzed (60% ended in 9, 30% ended in 5). Why does charm pricing work? Nobody is quite certain. There are a number of theories, including: Specificity: Charm pricing offers a degree of specificity, which psychologically triggers an idea that the product is priced at the proper value. This is especially true if the product is priced fractionally, meaning that the charm price appears as a cent value. Perceived loss: Consumers value a product based on loss rather than gain. And since most consumers in the Western world read a price from left to right, they are more likely to latch onto the first number they see as an anchor point. This means that €699 can feel like significantly less than €700 from the first impression, even though there is just a €1 difference. Perceived gain: The opposite of perceived loss could also be true, and consumers could use charm pricing as a way to feel like they’ve saved money. The higher, rounded price serves as an anchor point (€700), while the lower price represents savings (€699, which means you save €1). This follows a theory that a .99 or .95 price ending triggers a “sale” cue in the consumer, who might believe the price is discounted. Are consumers immune to charm pricing? Charm pricing is ubiquitous. As a consumer you see it everywhere you go, whether it’s at the drugstore, the supermarket, or a clothing giant or gas station. Just yesterday I bought a book in the train station on my way home from work that cost €16.95. But does this omnipresence of charm pricing make consumers immune to the price? Likely not, otherwise retailers wouldn’t continue the practice. And although it’s a small difference between €16.95 and €17.00, chances are I wouldn’t have bought that book if it were going to cost me €17.00 in total. And evidence suggests psychological pricing still works, despite its high amount of usage. In a 2003 pilot study conducted by researchers from the University of Chicago and Massachusetts Institute of Technology, 3 different test groups received different prices for 4 different dresses. The control groups all had a price that ended in a 9, and the researchers tested whether pricing the dresses $5 higher or lower had any effect on the rate of purchase. The researchers discovered that the products displayed with a price ending in a 9 tended to outperform the other prices, even if the other price was lower. So a price of $39 resulted in more dress sales than the cheaper price of $34! Who should use charm pricing? The effectiveness of charm pricing depends on a number of things, but by far the largest consideration is the buyer and type of good sold. And while there are many factors that go into your price, the easiest way to get started is to ask yourself one question: do you want to be known for your prices, or your products? If you want to be known for your prices, then charm pricing might be a perfect strategy for you. This is especially true if your products are elastic, and consumers don’t necessarily care about where they buy the product. So if you have a lot of products and want to be known as the cheapest option on the market, charm pricing will work well for you. Charm pricing might also fit your strategy if you have products that people buy on impulse. The specificity of the price appeals to the “logical” side of the brain, and helps consumers justify their decision to add that small item to their cart at checkout. When won't charm pricing work? If you sell luxury goods you probably won’t want to use charm pricing. That’s because you want people to value the product itself, not the price. And in many cases, people won’t want to feel like they are getting a deal. As Nick Kolenda writes in The Psychology of Pricing Strategies, If you sell luxury products, you WANT people to base their decision on your product qualities. You DON’T want them to consider the economic value. Thus, for luxury items, show the product, and THEN show the price. Take a look at these Louis Vuitton handbags below. Notice that none of the prices are even remotely close to the typical “19.99” infomercial style. Nor will they ever have a price like that. Instead, Louis Vuitton uses nice, round, whole numbers, and draw your attention to the product before you see the price. Louis Vuitton has a high brand value, and their price perception is equally astronomical. When someone purchases a Louis Vuitton bag, they do so for the status of it. They don't care about whether they saved €10, and might even shy away from the discounted bags. So before engaging with charm pricing, you should think seriously about how you want people to perceive your company, then mold your pricing strategy around your goals. Additionally, charm pricing does require a bit of nuance and market knowledge. Comparison shopping engines are sorted based on price, so you may want to use the exact same price as the lowest one listed. For example, if 5 retailers use 49.95 and you use 49.99 you will be number 6 on the list. You'll also stick out to consumers as overpriced. You'll need to watch your market carefully, and adjust your prices often to stay relevant with charm pricing. And while this is time consuming if you manually update your prices and track the market, you can also use a software like Omnia to follow the market and adjust your prices for you. In Omnia, all you need to do is make a difference between prices <100 (.95 or .99) and >100 (no decimals). Then the algorithm will automatically adjust to that price whenever it updates. Final thoughts Charm pricing might seem like something restricted to bad American infomercials. But the reality is that it’s a powerful tool to have in your arsenal. Charm pricing helps draw attention to your products, and can give hesitant purchasers the small push they need to click “buy now." Maintaining your charm prices, however, does require some work. And that's where a dynamic pricing software (or even a competitor pricing insights software) can make all the difference. Either of these softwares will help you save hours of time and capture more profits.
26.04.2019
How to Get Your Company Ready for Dynamic Pricing
So you’ve decided that you want to use a dynamic pricing software... But what happens next? It’s a reasonable question to ask. And it usually comes with countless more. What do I need to do besides install the software?...
So you’ve decided that you want to use a dynamic pricing software... But what happens next? It’s a reasonable question to ask. And it usually comes with countless more. What do I need to do besides install the software? Who do I talk to? How long does it take to get started? What is the process? If these questions are swirling through your head, don’t worry. In this post we’ll walk you through the “Roadmap to Dynamic Pricing,” a 5-step approach to organizational dynamic pricing success. Step 1: Define your goals for dynamic pricing Before you implement a dynamic pricing software, you need to have a clear idea why you want to use the software. Do you want to reduce the amount of time you spend updating your prices? Or just start updating your prices with the market? Do you want to build strategies at the category level? What about the product level? Gather all the stakeholders involved, and discuss the reasons why you’re bringing dynamic pricing software into your organization. You might realize you have more than one goal, which is fine. One of our customers, for example, wanted to: Optimize prices for margin Improve their price perception Reduce time spent on manual labor The more specific you can be with these goals, the better. They should also align with your overall commercial objective. Want more insights on how to define your pricing goals and build a strategy? Check out Five Steps to Successfully Implement Dynamic Pricing. You can also take a look at our Partners Page to see who we trust to help you define your goals and build a strategy around them. Step 2: Establish dynamic pricing responsibilities When you introduce a dynamic pricing software, many of the responsibilities on your team will change. Your teams will need to work together in new ways, and when you get the software up and running you’ll likely experience a reduced workload — meaning more time for your employees. So how do you manage all of these responsibilities and changes? And what happens to accountability when responsibilities change? Your organization is unique, so finding the right balance of responsibility will also be unique. In general though, the goal should be to have your buying, category, and pricing teams share responsibilities and the execution of price changes. Our advice? Start small with rolling out, beginning with just one product category or market. This way you can learn more about how your organization needs to change, and apply these lessons to future roll outs. Step 3: Build dynamic pricing strategies When you begin using a software to manage your pricing online, it’s an opportunity to dig deep into your pricing strategy, evaluate what’s working for your company, and discover areas for improvement. If you don’t take time to organize and plan your strategies, your pricing can quickly become complex when automated. Take some time to review pricing strategies, and make sure everyone in your organization knows your planned strategy. You can ask a consultant to help you with this step, or you can also subscribe to the Omnia blog to get free advice on pricing methods and strategies. And when it comes time to actually set up the strategy in your software, do it together with all relevant parties. This should also be a repeatable process: define your objectives, strategy, method, and rules for every product or category. Most importantly though, keep your strategies and pricing methods transparent across your organization. All involved parties should be able to clearly explain your strategy, and any changes should be easily accessible for all levels of the company. Step 4: Prepare your systems and data for dynamic pricing Before implementing dynamic pricing, most retailers have a pricing strategy that’s grown organically over time. And while you might still want to use the same basic strategy after implementing the software, chances are your current pricing system is spread out across different departments and owners. Just take a look at the question we got from one of our clients: “The process of changing prices takes about 3 days and data is scattered and not owned by any department. How can we be dynamic and accurate in this environment?” Dynamic pricing software lets you centralize this information into one, easy-to-use location. But it does take time to do this. We advise customers to start small with this part of the process. Much like we mentioned in Step 2, it’s useful to start small, learn from mistakes, and improve as you scale. Begin by focusing on one channel or part of your assortment, and invest in the system, process, and data during the pilot phase. Then apply those lessons to your next roll out. Step 5: Test and monitor your dynamic pricing methods You’re tuning the most important profit lever and investing heavily in both people as well as tools. How do you know if starting dynamic pricing was worth it? To answer this question, you need to test and monitor your results. One simple way to test is to establish a baseline before you fully implement Dynamic Pricing. You should look at all aspects of your business, including revenue, gross margin, logistical cost, marketing cost, FTE, and price image. Another option is to do some A/B tests against control groups. However, A/B testing does have some significant downfalls, so we suggest a slightly more sophisticated way of testing your online pricing’s effectiveness: compare across products within similar categories. Testing will ultimately help you build a business case for the software. Final thoughts Getting started with dynamic pricing software is a journey, and it’s never bad to have a little help. That’s why at Omnia, we invest heavily in customer success. When you use our software, you automatically will get a dedicated onboarding manager, solutions consultant, and customer success manager to help you navigate the road to dynamic pricing. Ready to try Omnia free for two weeks? Click the button below to get started.
08.03.2019
How Retail Seasonality is Changing
The seasons have always been a powerful influencer of retail, but do they still matter with the rise of e-commerce? In short: yes, the seasons still influence retail. Though the type of influence is changing...
The seasons have always been a powerful influencer of retail, but do they still matter with the rise of e-commerce? In short: yes, the seasons still influence retail. Though the type of influence is changing drastically. In this post, we’ll explore this “new” seasonality brought in the rise of e-commerce, and examine how you can adjust your strategies to match these changes. Two types of seasonality in retail Not all seasonality is the same, and it’s important to illuminate the different drivers of consumer spending. Seeing seasonality as two separate categories (holiday-driven seasonal shopping and climate-driven seasonal shopping), will help you understand your sales data and optimize for the next year. Seasonality and the holidays “Holiday shopping” is something that retailers can safely count on, regardless of where they are in the world. As long as you’re tuned in to your market’s holiday calendar and understand the history and traditions of a place, you can somewhat accurately predict high-traffic times of year. Some examples of holidays that drive traffic across Europe include Christmas, New Year’s Eve, and Valentine’s Day. You can plan on consumers shopping around these holidays, and can prepare your assortments accordingly. You can also go down to the local level and look for holiday traffic there. Here in the Netherlands, the weeks leading up to King’s Day are a great time to sell anything orange. Regardless of what the weather forecast says, the vast majority of Dutch people will celebrate on April 27th in full orange regalia. While a rainy day might mean celebrations move inside, the weather has little-to-no influence on how consumers prepare and shop for the holiday. Some categories are more influenced by the holidays than others. For example, you can almost guarantee that jewelry and chocolate sales will rise in early February for Valentine’s Day, regardless of the weather outside. Depending on the holiday, themed products are a great way to drive extra sales. Retailers can safely bet that reindeer-themed products will sell in December, heart-shaped boxes will trend in early February, and pumpkin-themed items will be popular around Halloween. Seasonality and weather Even though retailers can count on a certain amount of holiday traffic, the type of products people buy at different points in the year can vary greatly depending on the climate. Take, for example, the Christmas holidays. Here in Holland (and in most of Northern Europe), we associate Christmas with cold weather, warm fireplaces, gluhwein, cozy sweaters, and snow. The reason is obvious: the weather in this part of the world is typically cold around this time of year. This isn’t true for much of the world. Consumers in the southern hemisphere are in the middle of the summer when Christmas rolls around, so shoppers can have completely different associations of the holiday. If you’re in Auckland or Sydney, you might spend your Christmas Day on the beach, not tucked away under blankets with a steaming mug of hot chocolate in your hand. A side effect of this climatic difference is that you’re far more likely to find a Christmas-themed swimsuit in Sydney than in Stockholm or Oslo. You also don’t have to travel all the way to Sydney to see a change of climate, and even within Europe seasonal temperatures and weather patterns vary. Holiday-themed items aren’t the only products swayed by global weather differences. Certain categories are especially susceptible to weather changes, and are in fact even driven by the change of seasons. The most obvious category affected by this “climate seasonality” is fashion. Traditionally, a store‘s physical capacity limited what products brick-and-mortar fashion retailers could carry. They sold swimsuits in the summer, then as the season tipped over into the colder weather for fall and winter, they’d swap out swimsuits for cozy socks, thick sweaters, and heavy coats. But this seasonal cycle, much like retail itself, is changing in the 21st century. How retail seasonality is changing The seasons are still a major driving force in retail, especially for calendar holidays. And while they won’t disappear from your sales cycle calendars, the idea of a retail season is shifting for several reasons. Rise of online shopping Online shopping has changed retail in more ways than one. However, what’s notable for the discussion of seasonality is that retailers are no longer limited by the four walls of their physical store. This has an impact on the notion of ‘seasonality’ – particularly when applied to weather. Because online is naturally more nimble than brick-and-mortar, it is far less reliant upon the traditional “seasons” to drive sales. The online model means that retailers can react almost instantly to changing market conditions and fluctuations in supply and demand - which can occur daily, if not hourly. Today, no matter the season, retailers can sell any kind of product they wish. As long as they have a warehouse to hold and process products and orders, there are no limits on what they can sell. Now, a consumer can buy a swimsuit in the dead of January and get it shipped directly to their home in just a few days. Changing consumer behavior As retailers have become less concerned about limits on their products, so have consumers. Today’s shoppers won’t even bat an eye when it comes to ordering something “out of season” online. Instead, consumers expect to be able to find whatever they want, whenever they want. This is especially important for retailers to know as out-of-season shopping rises. One of the drivers behind this change is the fact that travel has become significantly less expensive in the last 25 years. There’s been a 300% increase in the number of overseas trips taken since the mid 1990s, and you can now book last minute flights to warmer destinations for just a few hundred Euros. Round-trip flights from Amsterdam to Los Angeles for as low as €333 This means consumers can now visit sunny or snowy places at any time of the year, and will order products out of season as they prepare for their vacations. Retailers should be stocked and prepared with any product a consumer might need, no matter the season. Unseasonable weather Consumer behavior and technology itself aren’t the only things changing seasonality: unseasonable weather can also seriously affect your retail sales. This past summer, Europe was hit by the 2018 European heat wave. The whole continent experienced an uncharacteristically hot summer that began earlier and lasted longer than we could have expected. A recent study found that unseasonably warm weather can cost retailers £40m per week for each degree that the temperature rises, and this was easy to see during the summer. Demand for summer clothes skyrocketed for much longer than retailers expected or were used to. In October, Superdry announced a 49% drop in their shares — part of which they blamed on the hot summer and their inability to sell jackets and coats. Uncooperative weather only underpins the reason retailers need to stay agile in their pricing and marketing. If the temperature soars unexpectedly, the demand for warm-weather clothing, for example, will also rise. The reverse is also true, and if the temperature plummets, consumers will search for more cold-weather clothes and indoor activities like board or video games. How retailers can adjust to the new seasonality There’s no point in trying to fight these changes: the world will only continue to morph and shift in the coming years. That’s why a pricing strategy is so important; it can help you navigate the rocky seas of changing society and new innovations. Pricing strategies are paramount to today’s success. Without one, you’ll get lost in the sea of e-commerce and can quickly veer off-course. But how are retailers supposed to execute any strategy across assortments with hundreds of thousands, if not millions, of products? Pre-internet, the average retailer had to consider around 4,000 pricing decisions per quarter to stay ahead of competitors. This number has now risen to more 60,000,000 daily decisions that you need to make in order to stay competitive. Dynamic pricing makes staying on top of your pricing strategy a possibility, and helps you stay agile in the face of a new seasonality. Omnia’s Dynamic Pricing software helps you manage your pricing strategy across an entire assortment. But what really makes our software different is our advanced tooling, including our weather API. With Omnia, you can combine your strategy with each product’s unique price elasticity...then factor in how its sales respond to changes in the weather. Interested in learning more? Try Omnia free for two weeks and see how Dynamic Pricing helps you take control of your assortment and stay agile in your pricing strategies.
25.02.2019
4 Categories Where Dynamic Pricing is on the Rise
As mobile shopping, the demand for omnichannel experiences, and the number of products increases across retail categories, so does the need for dynamic pricing to manage it. With roughly 20% of all retail purchases in...
As mobile shopping, the demand for omnichannel experiences, and the number of products increases across retail categories, so does the need for dynamic pricing to manage it. With roughly 20% of all retail purchases in the UK made online, it’s obvious that the retail landscape is becoming more digital. Curious about which industries can benefit the most with dynamic pricing? Keep reading. In this post we’ll examine 4 different categories where dynamic pricing is on the rise and give insights on how companies can harness the power of data for better prices. 1: Fashion Fashion continues to grow significantly online, and is a category to watch in 2019. This shift is largely driven by a few major factors: The connected consumer Traditionally powered by in-store sales, the fashion industry is currently struggling with the shift towards online. In particular, the industry has a hard time grappling with the fact that consumers are always “on” — they can buy products whenever they like, wherever they like. Technology makes consumer shopping unpredictable, which makes it hard to please customers. The result is that retailers slash prices without strategy, which drives a (perfectly avoidable) race to the bottom. Vanishing seasonality Additionally, the concept of seasonality is changing within retail. In the past, consumers could only purchase whatever products were in-store at that moment, most of which were dictated by the season. Sundresses and swimsuits were typically sold in the summer, while coats and parkas were sold in the winter. In an online store though, consumers don’t need to wait for a change of season to buy a product. Instead, consumers expect retailers to have every product available at all times. Rise of sports fashion Finally, the trend towards “athleisure” means that the entire fashion marketplace is shifting as the definition of “fashion” changes. New players can now enter the market with a bang, and sports retailers can edge further into a realm that’s traditionally eschewed “sporty” looks. Shifting dynamics Fashion brands and merchants are losing the power to set the prices on their products outside of their own stores. Instead, retailers are taking control and working within the market to set a price. Zalando, for example, use price as one of its spearheads to achieve their exponential growth. The company forgoes the traditional pricing strategy of sale (for example, a 50% discount on swimsuits at the end of the summer). Instead, Zalando, and other retailers with huge footprints online, continually adjust prices dynamically. Major fashion retailers have a first-mover advantage if they act fast enough in adopting dynamic pricing. And if you have a brick-and-mortar store, you have an opportunity to create a unique omnichannel experience for consumers in an industry does still command a lot of footfall. 2: Health and Beauty Health and Beauty is another category that’s growing rapidly online in 2019. In the UK alone, this category is set expected to grow at 16.5% each year until 2023, and this mirrors similar growth in the Netherlands as well. But the larger, traditional players are shrinking in their market share. This is because there is a new wave of Health and Beauty retailers on the rise: pure online players who offer the same products as brick-and-mortar stores through an internet shop at a dramatically reduced price. This pulls price-sensitive shoppers away from the more expensive retailers like Boots or Tesco. Like Fashion, the introduction of new players on the Health and Beauty market means that price cuts, and the resulting race to the bottom, are a very real threat for retailers. The market is now ripe for fluctuating prices, and as consumers become more aware of price differences, retailers need to be able to respond accordingly. Dynamic pricing allows you to plan for these changes and gives you control over your assortment in a market that is in a constant state of flux. It also lets you set a strategy at the product level, so you can protect your brand’s price perception while also meeting consumer demands for different prices. 3: Home and Garden Home and Garden is our third category that’s ripe for dynamic pricing. Historically, garden and do-it-yourself articles were advertised in leaflets. However, just like with the previously mentioned categories, the shift to an online store has opened up a new, unpredictable consumer market online. However, Home and Garden consumers are limited by locality. If someone is renovating their kitchen, for example, they might buy the tools they need online, but will purchase lumber at their local hardware store. This means that home and garden retailers can count on a certain level of in-store footfall, and use that traffic to drive more sales. The easiest way to optimize for both offline and online sales is by connecting your offline and online sales data in one portal, then using the insights to create a strategy. 4: Food While it sounds surprising, GFC figures show that in the Netherlands, food is the fastest-growing category in terms of consumer online spending. The days of visiting your neighborhood grocery store are quickly eroding as more and more companies offer online purchasing and grocery delivery. Several supermarkets already apply dynamic pricing: Jumbo mainly determines the price through close competition and uses the pure player Picnic the lowest price guarantee. In this respect, the UK is ahead of the Netherlands, where it is already possible to compare the price of a shopping basket between different retailers. This is a trend that many industries follow as dynamic pricing becomes more mainstream: as the frequency of price changes increases, consumers begin comparing prices online. Comparison shopping engines like those previously mentioned spring up. Conclusion The growth in online spending and the increasing frequency of the number of price changes means dynamic pricing is more relevant, and sometimes even necessary, in an increasing number of product segments. And while it might seem scary to switch to a dynamic pricing model in the beginning, the reality is that dynamic pricing gives retailers a first-mover advantage. Omnia can help retailers set up pricing strategies for success with our Dynamic Pricing module. Curious about how software can help? Reach out today, and get a two week trial of Omnia for free!
17.01.2019
What is a High-Runner Strategy?
How do companies like Amazon maintain such a huge market share and keep their prices low without losing profits? The answer is in their pricing strategy. Amazon — and many other organizations that seem to offer low...
How do companies like Amazon maintain such a huge market share and keep their prices low without losing profits? The answer is in their pricing strategy. Amazon — and many other organizations that seem to offer low prices while staying profitable — adhere to a special strategy called the “high-runner strategy.” So what is a high-runner strategy, and is it the right pricing strategy for you? In this post we’ll give you a short introduction to the high-runner strategy, then help you figure out if it’s the right option for you. What is a high-runner? A high-runner product is another term for the top-performing products in your store. These are the products that have the highest numbers of views, clicks, and purchases, and which are eagerly sought after by the public. They are generally highly elastic and extremely sensitive to market price changes. A great example of a high runner product is a top-of-the-line smartphone. A €50-100 difference between these products (a 10%-20% discount on a €500 item) will make a great difference in the number of clicks and purchases. The greater the discount, the greater the volume of sales Take a look at the example search for a Samsung TV— which listing do you think consumers will click on first? Most consumers will choose the cheapest option — in this case the €544 TV. The other retailers are severely overpriced for this product, even if they’re only priced 4.59% (€25) higher than the lowest competitor. The high-runner strategy With a high-runner strategy you discount heavily on these high-visibility products to increase the number of clicks to your site. This increases the amount of traffic on your site as well as the number of sales on that product. This is just the first step of the process though, and if you did this for every product in your assortment you’d end up losing money on margins. That’s why the beauty of this strategy lies in what you do with the increased traffic. Cross-sells and up-sells Once you have this traffic on your site, present consumers with up-sells and cross-sells on inelastic products at full price. This is where you make your margins. Going back to our television example, retailers could show customers a wall mount and an HDMI cable as add-ons during the checkout process. Many consumers who are already spending €544+ on a television won’t think twice about these products or stop to compare your prices to the competition. Instead, they’ll go ahead and add them to their cart and pay for the convenience of a packaged delivery. They’re also paying for the assurance that the products work well together so they won’t need to go through the hassle of returning a defunct product. Price perception Another way to use the high-runner strategy is to drive consumer perception about your store. This is Amazon’s strategy, and it’s partially what’s responsible for the company's global growth. If you consistently advertise yourself as the lowest price on a variety of high-visibility items, consumers will associate your store with low prices but high-quality products. As a result, you’ll become their default store for any of their needs in your niche and increase their loyalty to your store. Amazon has asserted itself as a one-stop-shop for almost any product a consumer needs. But if you look at its actual prices, many of its products are competitively priced with the rest of the market. The same is also true in reverse, and it has an even bigger effect. If you’re consistently overpriced on high-runner products, consumer loyalty will shrink. Final thoughts The high-runner strategy is a powerful way to change your company’s price perception and capture more sales. When done correctly, it’s an effective way to drive customer loyalty and increase profits through cross-sells and up-sells. But it’s not the right strategy for every retailer. If you want the public to see you as a top-of-the-line retailer with high prices, then this is not the strategy for you. Instead, you might want to charge premium prices as a sign post for your product’s quality. If the high-runner strategy is right for your business, you need a tool to help you manage prices and ensure that you stay competitive. Omnia’s suite of pricing tools help you keep track of your products and automatically adjust prices and bids so you are always priced according to your strategy. Want to learn more? Request a demo today to get in contact with our sales team. Curious to learn about other pricing strategies or interested in our Amazon guide series? Check out some of our other articles below: What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Odd Even Pricing?: An explanation of the psychology behind different numbers in a price. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers. Here’s What You Need to Know About Psychological Pricing (Plus 3 Strategies to Help You Succeed): Modern day pricing is so much more than a numbers game. When thought about correctly, it’s a powerful way to build your brand and drive more profits. How to Build a Pricing Strategy: A complete guide on how to build a pricing strategy from Omnia partner Johan Maessen, owner of Commercieel Verbeteren. The Strategies Behind Amazon's Success: Learn how Amazon became 'the place' to buy products online. The Complete Guide To Selling on Amazon: In this guide we answer some of the top questions we hear about Amazon and give helpful hints on how to succeed on the platform. How Does Amazon's Search Algorithm Work: Find out how Amazon connects their shoppers with relevant products as quickly as possible. Price, The Most Important P in the Marketing Mix: In this article we'll look at the relevance of the 7 P’s in today’s online marketing context.
04.01.2019
How to Define your Commercial Objective
In our blog Five Steps to Successfully Implement Dynamic Pricing, we encouraged you to start by defining your company’s commercial objective. But how do you determine your business goals? And how do those goals relate...
In our blog Five Steps to Successfully Implement Dynamic Pricing, we encouraged you to start by defining your company’s commercial objective. But how do you determine your business goals? And how do those goals relate to your pricing strategy? A good commercial objective needs work. In this post we’ll explore the process of defining this objective and give you practical advice on how to get started. What is the commercial objective? The commercial objective is an explanation for why your company exists and what customers can expect from your organization. In many ways, the objective is a compass that helps you make business decisions that align with your brand, goals, and consumer interests. Creating a commercial objective might seem easy at first, but it’s actually difficult to pin down exactly: Why you exist What makes you unique What your overarching message is Who you’re targeting But once you have the answer to these questions, you can make more strategic decisions that match your organization’s goals. An example of a commercial objective Home Depot has a great example of a commercial objective: “The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices.” This simple sentence clarifies several aspects of the company. They target consumers working on do-it-yourself projects around the home. It’s also clear what they want to achieve: quality service, numerous choices, and competitive prices. What does a commercial objective have to do with pricing strategy? A defined commercial objective is crucial for both your internal and external aspects of business. Internally, it helps to add measurable objectives for your departments. For example, Home Depot’s internal goals could include: Our service need a Net Promoter Score (NPS) of at least 8 (Operations team) We always offer 10,000 products per store (Category management) Our prices will never go above the market average (Pricing team) An important link with pricing already starts here: it’s hard to combine low prices with high service offering. Services cost money, so if a high quality of service is part of your objective, you need to factor these costs into your product prices. Looking back at Home Depot, you can see this in action. Notice that the company specifically keeps its language about prices vague with the words “most competitive.” This is because they need to factor in their high-level services, consumer perception, and more into their prices. If they promised to have the lowest prices, they could never provide the same level of service to their consumers. Since your commercial objective manifests in your prices, it also is crucial for the external aspects of your business. Price points act as signposts for consumers, and customers know what to expect from a service at every price point. If consumers see high prices for your products, they’ll assume that it includes a certain amount of service. High prices with low service offerings will brew customer resentment and be detrimental to your business. Your competition will either out-price you or offer a better value-for-money option for consumers. How to define your commercial objective There are two major steps in the process of determining your commercial objective: market research followed by business introspection. Both reach to the foundations of your business and serve as the base for your commercial decisions. Step 1: Analyze your market How do you want consumers to perceive your company? What is your ideal position and image? Before you can answer these questions, you need to analyze your market and see where you stand among your competition. There are numerous ways to do a market analysis, but for our purposes it’s important to drill down what you want to know about your competition. Consider the metrics you’ll use for bench-marking, and which companies you’ll analyze. At a minimum, evaluate your competition’s: Product prices Service agreements with customers Assortment size Specialization levels Use this information to evaluate different stores in your industry, then categorize them broadly. The graphic below is an example of how you can organize the data in a benchmarking map. This graphic looks at the number of products vs. price and service across a market: A matrix like this clarifies who your direct competition is and where there are gaps in the market. Step 2: Think about your goals After examining the market, it’s time to turn inward and focus on where your company stands in relation to the rest. Ask yourself what kind of company you want to be, and how you want to achieve those goals. Do you want to be a discounter with loads of products? Or a specialist in one product category (such as bags and suitcases)? Or somewhere in between the two? As a specialist you could have a higher price and a better value offering through services (such as fast delivery and product knowledge), but you will also make fewer sales. As a generalist you’ll make more sales, but you can only raise your prices to a certain point. Other good questions include: What are the opportunities in the market? Are their gaps in the above matrix? What are your current strengths and weaknesses? How do consumers perceive you now? How large is the gap between your current position and your ideal position? The answers will help you decide where you want to be in the market. Remember to write your goals according to SMART principles: Specific, Measurable, Achievable, Relevant and Time-bound. These principles help ensure your goals are actionable. Mission Statement vs Vision Statement What is a Mission Statement? A business mission statement describes the purpose for existing. For example, a company may exist to solve problems related to education, healthcare, or society. Defining and promoting such helps educate investors, employees, customers, and the general public. Let’s examine Amazon to survey a mission statement example: “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavours to offer its customers the lowest possible prices.” What is a Vision Statement? A business vision statement articulates aspirations and intended impact upon consumers, society, the globe, etc. It entails what a company is, yet is more interested in establishing what it aspires to become. IKEA’s is often among vision statement examples: “Our vision is to create a better everyday life for many people.” Difference Between Goals & Objectives Let’s first define a goal in a business context to distinguish a goal vs objective. A goal is a set outcome a business seeks to achieve. This could be more general, as to have a profitable year. Objectives seek to be more specific. For example, factoring a dollar amount and amount of time to define “profitable.” So, what is an objective? Business objectives are specific steps taken toward achieving company goals combined with a clear method of measurement. An objective is described in more quantifiable terms. Organisational strategic goals are more qualitative, such as aspiring to increase the quality of customer service. But, objectives can be measured, such as to reduce response times of customer inquiry to four hours by the end of the first quarter. Goal statement examples: We will maximise profits We will increase employee revenue We will be an industry leader Strategic objective examples: Increase profits by a minimum of 20% in the next fiscal year Average salary within the company will rise 15% in the next five years We will penetrate an additional 30% market share by the second quarter Move on to your pricing strategy After you’ve done the work of determining how you want the public to view your brand and what level of service you plan to offer, you can build a strategy that reflects your goals. We’ll cover this more in another post, but this is a good time to think about how your business goals translate into monetary needs. Conclusion Since your commercial objective should drive your pricing strategy, not the other way around, this process is an important foundational step towards automated pricing. As the overarching goal of your company, it should answer the question of how you want consumers to perceive your company and what they can expect from you. It’s an important step towards achieving your maximum profitability, and it’s the basis for everything to come. Have you defined your commercial objective and are interested in automated pricing management? Click the button below to request a free demo of Omnia today.
06.12.2018
New Report: Retail Pricing in the UK
What’s the state of pricing automation in the UK retail industry? Omnia surveyed 150 retailers across the country to uncover the answer to this question. We asked these retailers how they use technology in their pricing...
What’s the state of pricing automation in the UK retail industry? Omnia surveyed 150 retailers across the country to uncover the answer to this question. We asked these retailers how they use technology in their pricing and market strategies, then analyzed the results to create a full Retail Pricing Wars report. The results were quite interesting. In all, the data suggest UK retailers struggle to keep up with the rapid pace of e-commerce, and many fight the tide without the proper technological tools. This reflects recent findings from Microsoft that UK retailers fall behind in integrating AI and automation into business. Notably, we found: 96% of the top UK retailers have a pricing strategy, but almost half base that strategy on their competition’s prices 88% of those surveyed carry out price checking, but less than 50% react when their competitor changes the price of a product 34% of retailers feel pressure to change their prices regularly, but only 15% make those changes frequently UK retailers lose roughly 1.97 million hours (that’s 246,000 working days) each week on competitor price checking Want to read the full story? Click here to download your version of Retail Pricing Wars for free.
21.11.2018
How to Avoid a Price War on Black Friday
There is growing frustration among shops about Black Friday. This is most notable in the fashion industry, because of a consumer tendency to purchase several items of clothing at a discounted price, try the clothes on...
There is growing frustration among shops about Black Friday. This is most notable in the fashion industry, because of a consumer tendency to purchase several items of clothing at a discounted price, try the clothes on at home, then return 14 of the 15 pieces to the store. This phenomenon makes the holiday frustrating for several reasons: It clogs up the distribution network and overwhelms mail rooms around the world It fuels customer frustration when they need to wait for their products because of this pipeline error It falsely inflates retailers’ sales from the day and shows inaccurate stock levels Because of these frustrations, several retailers in the U.K. have chosen to forego the sales holiday this year. And since some evidence suggest that consumer trust in the holiday is declining, it might seem like Black Friday is a passing fad. So why should retailers continue participating in Black Friday? The reality is that the psychological impact of Black Friday on consumers is enormous. One of the most significant benefits of this holiday for retailers is the fact that consumers are primed - and ready - to purchase. McKinsey reported that over 70% of consumers in the U.S., Canada, U.K., and Germany are planning on participating in Black Friday this year. And in the Netherlands, the number of searches for “Black Friday” has increased from roughly 250,000 to almost 1,000,000 in the span of 3 years, according to BlackFridayDeals.nu. Those are high numbers, and shops would be ill-advised to dismiss these consumers who are ready to spend. Instead of avoiding the holiday because of the frustration and lackluster sales, shops should look at how they can optimize their pricing and marketing strategies to capture the increased consumer desire for Black Friday deals. In fact, many of the frustrations that companies voice over the holiday are easy to counteract with a smart pricing strategy. How to make Black Friday work for you If shops should participate in Black Friday, how do they make the holiday work for them? In this section, we’ll detail four steps to take to make the hype around the holiday do the hard work of attracting ready buyers to your website while maximizing your profitability. Build a promotional strategy around your commercial strategy Black Friday is largely a day about price perception. As a result, your promotional strategy for the day should reflect your overall commercial strategy. To get started with this, you should ask yourself two questions: 1. Do I want to do promotions? Depending on your corporate strategy, you might not want to participate as heavily in Black Friday as other organizations might. If your overall commercial strategy is to be seen as a premium store, then you might not want to compete with companies that pride themselves on always having lower prices. Listen: Which categories have the highest price pressure on Black Friday? A great example of this (though not related to Black Friday) is the Dutch department store de Bijenkorf. For many years they had an extremely successful promotional sale called “Drie Dwaze Dagen” (“Three Crazy Days”) - three days of steep discounts across the assortment. However, a few years ago the company changed their corporate strategy. They wanted to cultivate a more prestigious price perception among consumers. So the Bijenkorf got rid of Drie Dwaze Dagen, despite its popularity and success. The lesson: if steep discounts don’t align with your overall commercial strategy, don’t waste time trying to compete with companies that will discount on everything. Instead, you need to be more strategic, which brings us to Question 2. 2. Which assortments will you discount...and by how much? Since Black Friday is all about price perception, you need to be smart about which products you discount. And even though many consumers will participate, many are also questioning whether or not they are actually receiving the best deal. That’s because in many cases, they aren’t. A recent article from the Telegraph pointed out that for nine out of top 10 product categories, there were lower prices on other days of the year. This isn’t because retailers are trying to “rip off” consumers. Instead, it’s because they don’t have the proper data to know whether a product’s price was lower in the last month than what they advertise on Black Friday. Historical pricing data gives you the insights you need to decide which products you’ll discount and by how much. By understanding a product’s fluctuations over the course of three months across your competition, you can see who has offered the lowest price and then use that as a starting point from which to build your discount. This data then allows you to offer consumers some amazing discounts on great products while also optimizing your margins. Leverage the power of price elasticity Price elasticity measures the change in demand of a product with changes in price. Products can either be elastic, where a small change in price will lead to a great change in demand, or inelastic, where a small price change won’t significantly impact demand. The example we like to use at Omnia to illustrate this idea is a TV and a TV wall mount. Televisions are highly elastic products, and a discount on a TV will typically result in increased sales. A small change in price on a wall mount, however, won’t see the demand change. Price elasticity is a powerful tool to use on Black Friday, especially if you combine it with a high-runner strategy, where you discount heavily on a few popular items to draw traffic to your site then price the rest of your assortment regularly. Once you have traffic on your site, you can then cross- and upsell more effectively and drive profitability - all without discounting your entire assortment. Don’t forget about omnichannel experiences Though the vast majority of consumers plan to participate in Black Friday online, shops shouldn’t forget about the omnichannel experience. According to the previously-mentioned McKinsey report, roughly one-third of all consumers across the U.S., Canada, the U.K., and Germany will expect some online retailers to also have in-store offers. Amazon is already capitalizing on this by opening up several “pop up” stores around Europe this holiday season. This is especially true for fashion vendors where consumers prefer to test the product before buying. For example, you might research a pair of running shoes online and know exactly which pair you want to buy, but you’ll make your final purchase in-store after trying the shoe on to find the right size. The increasing influence of the “ROPO Effect” (“Research Online, Purchase Offline”) means retailers need to think about how to measure sales across both channels. Use dynamic pricing Finally, one of the easiest ways to make Black Friday work for you is to use a dynamic pricing software. There are four main reasons shops should consider this investment. Dynamic Pricing helps you: Focus Black Friday on strategy, not on manually chasing and adjusting prices throughout the day. Analyze historical data to evaluate which products you’ll discount and by how much. Track and optimize your online marketing. Reduce the manual labor involved in pricing and marketing. It’s also the best thing to prevent a pricing war to the bottom. Dynamic Pricing allows you to set limits based on your commercial strategy, so your products will never go below a comfortable level. Conclusion Black Friday is a day all about price perception. Shops should use it as an opportunity to reinforce their overall commercial strategy through calculated promotion discounts on key products, not arbitrary price slashes on an entire assortment.
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