Fresh off the discounting frenzy of Black Friday and Cyber Monday, Wal-Mart fired its latest salvo in its pricing war this week, gunning for the popular videogame category. After dropping prices on top-selling books, toys and consumer electronics in recent weeks, the retail giant slashed $10 off 50 of the top-selling games in its continued campaign to grab market share.
The retail giant’s aggressive stance and the ripple effects caused by other competitors willing to price match, has been a game changer for retailers of all sizes this season as they attempt to protect profit margins without losing increasingly knowledgeable customers. While “doorbusters” and other aggressive promotions have become the norm during the holidays, the new world of “merged channels,” is making competitive pricing information readily accessible to consumers, whether they are shopping in a store, online or with a mobile device.
While pricing across brick and mortar and online channels is still often viewed in silos within retail operations, this season is ushering in a new era of transparency. Illustrating this trend, Big In Japan, developers of the ShopSavvy application, which allows consumers to use their phone’s camera to scan barcodes to find the best prices for online and local items, reported that 612,488 users scanned at least one item on Black Friday, a sevenfold increase over the 86,000 ShopSavvy users that scan products on an average Friday. Total scans for the weekend topped 18 million, with Wal-Mart, Best Buy, Target, Game Stop and Macy’s representing the five most popular retailers for ShopSavvy scanning.
Leading analysts suggest the increased transparency combined with aggressive pricing of industry heavyweights now dictates a more scientific approach to pricing. Nikki Baird, Managing Partner of analyst firm Retail Systems Research, suggests retailers “pick and choose” the pricing and promotion battles they are going to fight. “You can’t price match on everything, and it’s not worth it to price match on the most aggressive stuff,” Baird says. “If a retailer has the capability at all, now is the time to offer personalized promotions, especially to the people that are typical defectors during the holidays.
Given the increasingly competitive, cross channel environment this holiday season, Baird adds that now is an ideal time for retailers of all sizes to utilize price and markdown optimization tools? “There are SaaS model options out there that fit smaller retailers’ tech budgets and capabilities. If you can afford it, I would recommend it because there are a lot of corporate myths out there about pricing, and even the best price setters, merchants, and buyers out there can’t keep their arms around the complexity generated by a granular pricing strategy,” she says.
Heather Dawson, Chief Customer Officer for Runa, which recently released a conversion marketing application designed to enable retailers to offer customers real-time individualized pricing incentives online, adds that pricing is emerging as the biggest competitive lever and differentiator. “Retailers that invest in pricing and promotion optimization solutions win because they can cater to the shopper’s desire for deals without compromising their profits,” Dawson says. “Without a strategy, and a supporting solution, retailers risk losing their shopper’s business or losing profits as they discount more than is necessary.”
For smaller retailers that can’t match the low prices of giants like Wal-Mart, Baird suggests bundling together other services and products that can enhance the value proposition of a promotional offer. “Bundles are good, because it makes the loss leader strategy more of a sure-fire win by designating that some other purchase must accompany the purchase of the deal,” Baird adds. As an example of a differentiating with service, she suggests gift finders and personal shopping services.
Dawson adds that the current business climate with retailers trying to tightly monitor balance inventory levels and margins makes pricing intelligence even more critical. “Price sensitivity changes very quickly when the supply or demand become constrained. Without intelligence, a retailer misses these shifts and is left behind with either excess inventory or less profit than was available to them,” she says. “With leaner inventories, the retailer really needs to make more profit per order if they want to achieve a similar financial performance. Being able to respond to demand and the shopper’s price sensitivity in real-time allows them to make adjustments that maximize profit per order.
With merged channels becoming more of a reality for retailers, Dawson suggests cross channel merchants use their online stores as a lab environment to test the response to various offers. “Cross-channel retailers can use their e-commerce division to gain insights about shopper’s preferences and also as a way to dynamically distribute offers. They have the advantage of being able to quickly test and roll-out quickly,” she says. “The key is using the shopper’s behaviors to guide their strategy, and being able to respond in real-time while the shopper is still in the store.”