Another quarterly earnings season is in the books, and save for a few bright exceptions, it was another dismal one for retailers. It seemed almost a daily occurrence the past few weeks – news headlines littered with the next retailer who struggled under the weight of aggressive competition and changing consumer preferences. We’ve heard this story before, and same goes for the varied reasons thrown about to explain (blame) the performance “miss”.
While that part of the commentary has sadly become mundane, the earnings calls got far more interesting when it came to retailers’ responses on a path forward. More than a few retail bellwethers extensively talked about doubling down on price reductions. In today’s transparent retail environment, price is always a focal point, but this commentary felt and sounded different. The planned price actions were far more concrete, far larger in scale, and far more isolated in terms of complimentary actions to incite growth. In short, it felt an awful lot like the start of a price war.
Hopefully, these retailers recognize that competing solely on price is a dangerous proposition for all but a select few, and thus they are also planning other initiatives to drive customer engagement and conversion. But, given the state of the industry, avoiding aggressive price competition at this stage of the game is unlikely. For those preparing for battle, here are a few key considerations for surviving (and even thriving) in a price war:
Play to win…but only after you know where, when and how much to compete. Most retailers can’t afford to blindly follow the lowest market pricing (and they shouldn’t anyway). The good news is that you don’t have to meet or beat all prices on all products to win. The key is to identify which products are most critical to customer price perception and then understand what a price reduction will yield in terms of traffic, conversion and profitability. Sounds great, but how? Well, the right predictive and prescriptive analytics can help eliminate these unknowns, identifying where, when and how much to compete to achieve your strategic objectives.
Act with speed…but also with consistency and confidence. Given the scale of most retail operations, there is an essential technology component to enable successfully competing on price. In today’s hyper-competitive and rapidly changing retail environment, there is no doubt that speed counts and time is of the essence. That said, well-informed, consistent and confident decisions trump fast decisions any day of the week. Without the right strategy and analytics to guide these decisions you risk investing in price decreases that yield far less return than expected, or far worse, are dilutive to the business.
Pull the price lever…but don’t use it as a crutch. The power of pricing as a lever to drive volume and profits is unparalleled. Used correctly it can be highly accretive and strategic. Abused, it can get ruined quickly. Today’s customer demands competitive prices, but they also crave experience, meaningful association with your brand, and convenience (among other things). Price can, and should, absolutely be a key part of a competitive strategy, but its impact can be greatly amplified when accompanied with a strong value proposition, high customer engagement, and relevant assortments. If price becomes your entire competitive strategy that is a sign of trouble ahead.
Today’s retail environment is no doubt taxing many traditional retailers, and at times calling for drastic shifts in strategy to survive. The right approach, informed and guided by predictive and prescriptive analytics, can eliminate the unknowns in your pricing decisions and allow you to win the battle by increasing revenue without increasing risk.