5 Ways Retailers Can Optimize Pricing This Holiday Season
Holiday season is just around the corner, and the National Retail Federation (NRF) is predicting that the 2014 season will be a spectacular one, with 4.1 percent estimated growth and expectations of new records for online sales. Of course, every retailer wants to cash in and maximize revenue without leaving any stone unturned. However, maximizing revenue without hurting margins is the key to success.
In Ugam's six-plus years of providing price intelligence solutions to U.S. retailers, we've found that improper deployment of pricing intelligence (especially price matching) isn't an effective strategy. Smart retailers know that there are several other levers that can be deployed along with a competitive price that will help maintain margins while maximizing revenue.
Here are a few ideas that we've seen succeed that you can use this holiday season:
Step No. 1: Identify the "anchor" items in your assortment. When looking at your transaction history and consumer browsing history, they're relatively easy to identify — i.e., they drive traffic. Doing a market basket analysis of items frequently purchased together will help you identify anchor items and potential "halo" items — i.e., items customers have a bias toward because of a previous positive buying experience.
Step No. 2: For these anchor items, focus on adjusting price or website content (e.g., product images and descriptions). We've found that better content reduces overall price elasticity for the item. The better a product is described and displayed, the more willing customers are to spend more for it. It's especially important to pay attention to search engine optimization, buying guides, descriptions, high-resolution images, etc., for anchor items. Of course, the pricing for these items need to be competitive as well.
Step No. 3: Determine your pricing strategy for nonanchor items. Use dynamic pricing capabilities to guide smart rules-based price changes based on external competitive data, democratic data (e.g., search, review, social signals) and internal transaction data. The closer you get to the holidays, the more willing people will be to pay more to pick up the item immediately or get it in two days. Consumers are looking for value, but value isn't just price; it's a retailer's ability to provide inventory in response to the urgency of need, and retailers should price accordingly.