Is differential and dynamic pricing here to stay?
Ali Athar | 05.12.2016
Although retailers are not talking this up, differential pricing is already happening in retail today.
Retailers are actively doing differential markdowns across their store base, and doing differentiated promotions by store, or segment. Now the talk is all about dynamic pricing, which will in effect result in differential pricing across stores.
The net net of it is that we have, in effect, differential pricing, although nobody is acknowledging it.
All retailers in Spain, Portugal, France and Brazil − many of whom we work with − operate publicly declared differential pricing. It is a way of life. Their argument is that it is increasingly difficult to justify the same price in areas where labour costs, rents, rates and living standards are much lower than in other parts of the country. Its also harder to fight the fight against the ‘Aldi’s’ and the discounters of the world without differential pricing and ranging. They are eating market share ... and the income disparities which exist in our society are likely to increase not decrease. So national brands in the UK will eventually need to do what they do in other countries.
If you look at the experience of countries practising this, it is clear they are all working to pricing by price zones. They use one as a standard and differentiate relative to it.
Politically, it is also a better message as the prices reflect differences in standards of living. It is easier to answer. And yes, if somebody in London wants to drive to the Midlands to do their shopping, they are always more than welcome.
It also would be the right way to encourage movement of people across regions. People can have the choice of living in areas in keeping with their cost of living expectations.
In all the countries where retailers are practising this there are, of course, cost of living league tables by region, and that is healthy.
Many retailers in the UK ask us how retailers in these countries deal with the internet. The answer is that when people log on, or even from their IP address, the websites reflect the prices and promotions in their nearest store.
In terms of differential promotions and markdowns, many retailers are already working on programmes with us.
Does it mean that retailers will be operating to lower net margins in the future? We do not believe that necessarily follows. The reason is that promotions and markdown budgets today are already reflecting the paucity of differential pricing.
When differential pricing comes to the UK it will bring margin management to the centre of attention. Today’s systems infrastructures are not capable of supporting it. Forewarned is forearmed.
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