Fundamental Questions for Understanding Your Pricing Perception
It’s often said that perception is reality. How a brand or product is perceived by a consumer is more real to them than a retailer may realize, and that can be hard to overcome.
According to a Price Optimization RSR Benchmark Study conducted in March 2020, 34 percent of "retail winners" indicate that a top external business challenge is a consumer perception that they’re not priced competitively. This is consistent with other merchandising studies from RSR over the past few years, as price sensitivity has consistently ranked as a top three challenge.
Even the most knowledgeable shoppers can make decisions based on perceptions alone, concluding that a retailer has better prices across the board because of one experience or a handful of factors. Although pricing teams cannot anticipate and plan for every assumption that may or may not reflect reality, the vast majority can be mitigated and managed by answering three fundamental questions.
What do we as a company assume our competitive position to be?
The first step is to develop a comprehensive, analytics-informed strategy. However, the unfortunate truth is that just because such strategy is executed on doesn’t automatically mean it’s effective. For this reason, it’s important for a retail organization to continually reset the bar for where it wants to be, evaluating the gap between reality and that aspirational top spot:
- How do we identify top price perception items (KVIs)?
- How are pricing zones determined?
- In an increasingly online retail environment, what's the strategy to drive pricing perception in specific channels?
- How frequently do we shop top competitors, and have we developed a pricing index against them?
- Are we leveraging predictive analytics to determine whether to price match?
This is a critical first step before tackling the next.
With this in mind, what is our actual competitive position?
There's often a large gap between what a retailer believes its competitive strategy to be and how impactful it actually is. Therefore, if the first question gets into the nitty-gritty of your competitive strategy, think of this question as a good hard look at governance. Compliance and strategic reporting that drives actionable results are essential to driving price perception in the market. Assessing health in each of these areas is a good indication of where your position is realistically.
Even the most well-designed competitive strategies can fall apart when merchants have override abilities. For example, if compliance isn’t tracked closely, the organization starts to deviate from the agreed-upon pricing plan pretty quickly. Accurate measurement and reporting capabilities are also important here: dashboards provide a clear view for monitoring price position over time.
If we asked shoppers, what would they say our brand position is?
The answer to this question is the one that matters most. But odds are, you won’t like what you hear if you haven’t invested time and resources into getting the first two questions right. It’s not uncommon for retailers to have a strong competitive strategy, but not get enough credit for it by consumers who get to make the final call. There are a number of reasons why:
- A failure in analytics. You’ve misidentified your key items, or you’re highly competitive on inelastic or nonprice perception-driving products. If this is the case, you’re throwing away margin for minimal return in price perception.
- A failure in technology or process. Remember that your top competitors are actively managing their own price perception, too. If a competitor can adjust prices daily and you’re doing your best to keep up on a weekly cadence, you'll fail to drive your desired price perception.
- A failure of messaging or marketing. The best prices won’t resonate if no one knows about them, or if marketing messages lift up other aspects of your offerings. Because price perception relies on consistency and stability, your marketing strategy must support your pricing perception goals.
Influencing the pricing opinions of shoppers is challenging even for the savviest of retailers, and establishing a positive price perception takes time. In considering each of these questions, you’ll be on your way to achieving a pricing perception that optimizes business outcomes, navigating complexities and reacting to anything that may harm that hard-earned spot in consumers’ minds.
Matthew Pavich is the managing director of global strategic consulting for Revionics, where he develops data-informed, industry-leading pricing strategies, processes, analytics and organizational fluency to help retailers meet the challenges of today’s increasingly dynamic and competitive landscape.
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Matthew Pavich is the managing director of global strategic consulting for Revionics, an Aptos company, where he develops data-informed, industry-leading pricing strategies, processes, analytics and organizational fluency to help retailers meet the challenges of today’s increasingly dynamic and competitive landscape.