Yet another retailer appears to be reeling from the Amazon effect.
Sports Authority’s recent announcement that it was filing for bankruptcy protection and closing nearly one-third of its 450 stores nationwide was further testimony to the power of Amazon. But the news also offers several Revenue Management lessons for retailers hoping not to be swept into bankruptcy by the online giant.
These lessons go to the heart of how retailers – or any business, for that matter – can deal with a disruptive technology, which is what Amazon represents. As Sports Authority and others have learned, simply matching prices with online retailers can be disastrous.
For starters, businesses need to leverage big data, predictive analytics and customer insights to get to stay ahead of today’s hyper-informed consumers and their online competitors. They also need to take into consideration the following:
- See what the customer sees. A company in a transparent economy must be able to see the consumers’ alternatives exactly the same way consumers do. Spot checks aren’t good enough. Competing requires having the continuous visibility possessed by your customers.
- Predict tradeoffs. Visibility allows managers to see the criteria hyper-informed consumers use to make decisions. Sophisticated mathematical modeling and analysis can predict how consumers will respond to your offers vis-à-vis your competitors so you can respond immediately.
- Embrace granularity. Your customers are shopping for products and services very specific to their needs. But most large organizations make simplified assumptions to deal with the complexities of millions of customers buying thousands of goods. Your decision-making capability needs to be as granular as the hyper-informed consumer. The best defense in a market of hyper-informed consumers is to be a hyper-informed company.
- Be agile. In a transparent economy, customers react to market changes almost immediately. As competitors adapt and customer volatility increases, managers must increase the velocity and accuracy of decisions. Decisions about price, promotions and inventory availability that were once made monthly or weekly must now be made daily, hourly or even real-time.
- Constantly connect with your customers. The hyper-informed consumer uses social media reflexively to make purchasing decisions. Companies must be as connected as their customers are to changes in their social media profile – from Yelp.com postings to Twitter traffic about service quality — and continually communicate across all platforms.
- Build a walled garden of customer intimacy. Strong customer relationships can help capture the hyper-informed consumer. Combining forecasting and pricing analytics with intimate knowledge of consumer preferences enables companies to proactively connect with real-time, targeted offers. By continuing to engage customers, charging a fair price and delivering superior service, firms can create an environment where hyper-informed consumers thrive.
- Enhance brand power. A strong brand franchise can trump the transparent marketplace. Apple, Nike, BMW, Gucci, Disney and Coca-Cola aren’t immune to hyper-informed consumers, but they have brand equity that helps neutralize power shift and allows price premiums.
- Get paid. Have the best product and know how to price it. If you have created differentiation, connected with consumers and built strong brands, you need to charge appropriately for the valuable services and goods you provide. The long-term interests of your investors and employees demand that you don’t leave money on the table. Develop analytical systems, processes and cultural awareness that assure you get what you deserve.
By taking these lessons into consideration, retailers can survive the Amazon onslaught. They can produce a break-through pricing framework that answers the questions of when should a lower competitive price be matched, when can you justify a pricing premium, and when do value-added components offset higher prices.
The answers to those questions will result in increased profitability and, more important, survival.