5 Tips for Improved Pricing and Margin Optimization

The world’s leading retailers understand the promise of big data and analytics. They know competitors are finding insights and making advances, and many have seen their own pilot projects deliver measurable gains in marketing efficiency, sales or margins. Data-driven insights can create value across a business, helping managers tailor assortments at the store level, simultaneously enhancing the customer experience and improving unit economics.

There are still many retailers, however, that struggle to embed insight-driven approaches across their organizations. Transformation on this scale is difficult and takes time. The “chain to impact” includes both human and organizational factors such as people and process, as well as technical enablers including data, solutions and advanced insights. A typical transformation effort has a roughly 30 percent chance of achieving the targets set by the company. However, companies that commit to using an evidence-based approach, building the right analytical team, and leveraging the latest insights and solution breakthroughs succeed with transformation efforts 90 percent of the time.

So how can you be one of those retailers that achieve success? Here are five tips to help ensure improved pricing and margin optimization:

1. Remember, it's a journey not a trip. Given the complexity and variety of activities in retail, companies can’t move quickly to where they want to be. Rather, they increase their chances of success by taking small measured steps, each big enough to make a difference in performance but small enough to be embedded and scaled within the organization. Companies should also commit to a strategic roadmap of how they will embed analytics, insights and actions into their organization, and should be educated and committed to this vision.

Leaders should consider all constituents required to drive their strategy, including organizational elements (e.g., staff capabilities and best-in-class processes) and technical elements (e.g., data management, analytics and software systems). This holistic approach across people, process and technology generates significant impact, including better decisions on promotional activities and trade investment, as well as sustainable change within the organization.

2. Get the right people on board. It’s easy — and potentially dangerous — to focus on the short-term benefit or impact of change, yet the change process is often long and interlinked. The right people need to be in the right seats on the right bus going in the right direction. This may mean hiring additional talent, moving people into a more efficient structure or even aligning the organization to the strategy. It should also be noted that hiring outstanding candidates is intensive and must be done with rigor and focus.

3. Move to decision-based data management. It’s human nature to look at the information in front of us for clues. However, most retailers do better if they first define the kinds of decisions they want to improve upon and then look for data that can inform those choices. Selecting improvement areas can also help managers structure the data, decide where accuracy is paramount, and determine whether to buy software or build it from scratch.

For example, data-driven insights can often help make promotional spending more efficient. But what kinds of decisions does the company need to improve? How are targeted customer segments responding to the promotions? What behavior are you trying to incentivize? How big should discounts be? What time of year or in which geographies do you offer a discount? Where to mail coupons or circulars? Each decision requires distinctly different data and analyses.

4. Choose the right solution. In choosing or designing tools, retailers should look for an easy-to-use solution that can improve performance with insights the merchants and analytics team understand. More sophisticated tools can be helpful for expert users, but if a typical user doesn’t understand the insights behind the tools, the investments may be wasted and adoption slow. Our experience has shown that the best tools offer sophisticated insights but are intuitive (and almost fun) to use. The software also has to be flexible enough to keep providing useful insights as the marketplace changes.

5. Change mind-sets and behaviors. Successful transformations typically begin with a “coalition of the willing” who are prepared to show the way. These leaders help form dedicated teams that begin documenting processes. The revenue management team should be the foundation, and experts help teams improve core revenue management processes and guide the evolution of a flexible and expanding set of databases and tools. Experts “teach the art,” and employees throughout the organization receive training.

It’s a multiyear journey to insight-driven leadership that can present many challenges along the way. The rewards of success — and the costs of failure — are enormous. Retailers need to start down that path now to keep pace with their competition in a marketplace that’s revolutionizing itself with incredible speed.

Channie Mize is the general manager for the retail sector for Periscope, a McKinsey Solution.