Competitor Pricing What is the answer?
Competition is great. Except when it is a
race to the bottom.
Over the last decade input prices have
fallen dramatically. We are living in a world of
oversupply as manufacturing capacity continues to
expand in emerging markets.
Oversupply is creating new opportunities, new
strategies, strange competitors & new business
models.
1. New retailers who are passing the cost
savings to consumers
2. New competitors fuelled by a growing
grey market in branded products
3. New e-tailers who are using pricing to
win market share.
4. Existing retailers extending their brand
with lower priced lookalike products
(generics).
How should retailers react to the competitor pricing
challenge? What are the options open to traders who
have to deal with competitive pricing on a day-today basis?
Trading reality is the investment you have in stock.
Unless pricing is linked to the investment in stock in
some way, pricing will always be sub-optimal. The
most effective competitor pricing strategies we have
seen are those focused around stock pools.
What do we mean by pricing by stock pools?
It is dynamic pricing based on the level of
investment in stock depending on the product
being a slow mover or fast mover, unique or
commoditised.
Of course in the ideal world they would also
be differentiated by segment or location, but
surprisingly no one seems to be ready for that level
of competition other than petrol stations.
To do this well we need to stay on top of four things.
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Product segmentation
Price architectures
Competitor prices
Sales and stock information by
jurisdiction or zone
Strategies need to be more sophisticated
than simply staying a few % points above
or below the nearest competitor.
Unfortunately sophistication is hard in a retailing
world which has tried to keep things simple.
It is even harder when you are dealing with 30000
products across multiple jurisdictions and stores.
It is impossible without the right tools, but systems
are getting there. We now have the tools that can
make sophistication easier.
In our view, you can no longer price in a vacuum.
Price has to be monitored and adjusted dynamically
to market conditions. 100% sell through or stock
turn is still vital and price is a key weapon in driving
that.
Most retailers we see are taking simple competitor
stances, which are optimising neither sales nor stock
turn.
In the UK we were partly blessed; although
competition is severe we were historically protected
by the cost of quality retail space but that is no longer
the case. The Internet is taking away the moats
around our castles and we are under assault.
Hoping it will go away is not the answer- avoiding
any level of sophistication in the battlements
only leaves us open to more assaults. This
problem is here to stay.
So let’s tackle it.