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RSR Study Highlights Pricing And Promotional Trends, Opportunities

Many retailers implementing promotions across all channels are willing to change their pricing strategies in an effort to meet consumers’ demands. However, retailers have reported that there is little clarity on the business impact of making price changes on specific items; in fact findings about retail pricing and promotions from a benchmark study by Retail Systems Research (RSR), 76% of all respondents continue to increase the number of price changes sent to stores and other channels. Study results were discussed by Paula Rosenblum, RSR’s Managing Partner, and Nikki Baird, RSR’s Managing Partner, in a recent webinar titled, “Retail Pricing In A Post-Channel World,” sponsored by Predictix.

Findings were revealed using RSR’s “BOOT” research methodology, which focuses on a company’s Business, Opportunities, Organizational and Technology inhibitors. Specifically, BOOT examines the business challenges that may hinder a retailer’s goals yet also create opportunities. This methodology evaluates external challenges (organizational inhibitors) which enable technology solution providers to take advantage of the business opportunities that BOOT identifies.

Roughly two-thirds of retailers surveyed are from the U.S., although they do business all around the world. “We had a nice performance bell curve of below average, average and above average performers,” Rosenblum noted, “and an interesting split between fashion and short lifecycle, seasonal and basics/replenished items.”

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Retail Winners Reap The Benefits Of Pricing

Although many respondents noted successful 2012 holiday sales, RSR underscored the importance of Retail Winners, defined as those whose year-over-year comparable store sales outperform inflation. “Retail Winners don’t just sell more stuff; they become winners by thinking and acting differently from their competitors,” Rosenblum said.

Conducting a pricing benchmark study during a recession yielded interesting results, Baird noted. Based on RSR’s impressions from holiday sales, the retail industry relied on promotions to drive purchases. “We don’t mean ‘spur-of-the-moment’ or ‘I-have-too-much-inventory’ over-promoted,” Baird told Retail TouchPoints, “but promotions that appeared to be planned, which seems to be confirmed by our research.”

One goal of the study was “to investigate and understand these omnichannel pricing strategies, which is the result of IT consumerization and price transparency,” Rosenblum said. “We also wanted to understand how the two impact retailers’ pricing strategies; we presumed this impact would be strong.”
                         
The results of the study spotlighted the following key points, including:

  • Retail prices are racing to the bottom;
  • There are continued increases in the number of price changes;
  • Fashion/short lifecycle product retailers are driving the promotions bus; and
  • Retail Winners generally are less hyper-promotional.

Additional key findings of the report indicated that more retailers are purchasing high-performance pricing tools, but are having difficulties managing them.

A majority (70%) of retailers selling fashion/short lifecycle, as well as the study’s underperformers, have reported becoming more promotional, according to the RSR study. However, underperforming retailers are improving over time. “Once retailers who underperform find that promotion works, they become addicted,” said Baird. “It really is like an addiction; they use the same promotions over and over again, which become less effective over time; retailers then find they have to push promotions harder just to maintain the same rate of effectiveness.”

Channel Impact Increases

About one third (34%) of respondents reported that their zone pricing plans have been damaged by consumer price transparency; however, 26% of retailers indicated that channel proliferation has not impacted their pricing strategies this year. In addition, the report noted that fashion retailers are lagging behind in adjusting pricing strategies and are not implementing lower prices on their e-Commerce web sites.

Baird discussed how retailers seem locked into competing based on price, which will lead to ever-lower — and ultimately unsustainable — prices. Mobile price comparisons are showing mixed messages. Mobile is the only channel in which retailers are not in “a race to the bottom.”

“Approximately 40% of retailers claim they are not seeing mobile price comparisons at all yet,” Baird said. “We think it’s good news that only 12% said they will price match and that only 2% said they will beat competitors’ prices.”

Confidence A Big Factor

The opportunities around pricing strategies always have been about top line and margin improvements, explained Rosenblum. In an effort to help build their confidence levels, more small retailers are utilizing daily deal web sites such as Groupon and LivingSocial to change their image and drive foot traffic to their physical stores. Retail Winners are more focused on the need to provide consistency in price across channels, while others have their eye on competitors. Most (62%) retail winners are collecting data from new channel promotions and using it to make better pricing decisions.

RSRchartRetailers continuously are running promotions, but confidence in their effectiveness declines in proportion to performance, with only half of Retail Winners confident their promotions are effective overall.

Most fashion retailers’ promotions have been hard markdowns and markdown events. In the fashion industry, the top three organizational barriers to these promotions by product category are:

  1. Lack of coordination with marketing;
  2. Resistance to change from stores or other channels; and
  3. Resistance to change from merchandising.


Challenges And Opportunities To Succeed With Pricing And Promotions

Success in retail is no longer about the technology alone. Today, retailers must focus on their pricing and promotions strategies to drive foot traffic. “Pricing processes need to improve, and retailers must dive into what these processes are and how they can achieve price strategy objectives,” Rosenblum said. “This is where the opportunity for technology tools suddenly becomes more important.”

Retailers are reporting little visibility into the overall success of these pricing changes, yet they continue to make more of them, noted Baird. Close to 40% of retailers have processes in place to manage promotional planning across various organizations within their companies. However, only 20% of these retailers have effective policies in place to manage different prices and promotions across channels and touch points. “This is a huge disconnect that reflects the impact of cross-channel, and some of the transparency that comes from it,” explained Baird. “There are groups of retailers that recognize the impact this disconnect is having on their business and business practices, while others see the symptoms but have not associated them with the specific cause.”

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