Competition is great. Except when it is a race to the bottom.
Over the last decade, input prices have fallen dramatically. We are living in a world of oversupply as manufacturing capacity continues to expand in emerging markets.
Oversupply is creating new opportunities, new strategies, strange competitors and new business models.
How should retailers react to the competitor pricing challenge? What are the options open to traders who have to deal with competitive pricing on a day-to-day basis?
In our view, you can no longer price in a vacuum. Price has to be monitored and adjusted dynamically to market conditions. 100% sell through or stock turn is still vital and price is a key weapon in driving that.
Most retailers we see are taking simple competitor stances, which are optimising neither sales nor stock turn.
Trading reality is the investment you have in stock. Unless pricing is linked to the investment in stock in some way, pricing will always be sub-optimal. The most effective competitor pricing strategies we have seen are those focused around stock pools.
What do we mean by pricing by stock pools?
It is dynamic pricing based on the level of investment in stock depending on the product being a slow mover or fast mover, unique or commoditised.
Of course, in the ideal world they would also be differentiated by segment or location, but surprisingly no one seems to be ready for that level of competition other than petrol stations.
To do this well, we need to stay on top of four things.
Strategies need to be more sophisticated than simply staying a few % points above or below the nearest competitor.
Unfortunately, sophistication is hard in a retailing world which has tried to keep things simple.
It is even harder when you are dealing with 30,000 products across multiple jurisdictions and stores.
It is impossible without the right tools, but systems are getting there. We now have the tools that can make sophistication easier.
In the UK we were partly blessed; although competition is severe we were historically protected by the cost of quality retail space. But that is no longer the case. The Internet is taking away the moats around our castles and we are under assault.
Hoping it will go away is not the answer – avoiding any level of sophistication in the battlements only leaves us open to more assaults. This problem is here to stay.
So let’s tackle it.
>> Read more about price optimsation with Profimetrics