Let me explain
Say that every morning before opening time you could switch on your computer, logon to a website and see a spreadsheet right in front of you with the price each of your competitors is charging online for the same camera. If you are selling the camera for $150 and your lowest-priced competitor is selling it for $135, you can make an informed decision to lower your price to a level that reflects the true value you offer the consumer.
For example, if you believe you offer a better in-store experience than your lowest-price competitor and that the consumer will pay a small premium for that, you may decide that $142 is about right for that camera.
Let's say though that your lowest-price competitor is actually $170, or $20 above you. You may then decide to raise your price from $150 to $165, resulting in a higher margin and profit without sacrificing your price leadership.
How to create an effective pricing strategy
This is anything but a race to the bottom. It’s strategic pricing where the retailer captures the optimum value of each sale.
One of the drawbacks with some retail technologies is that they require considerable up-front and ongoing operating costs. This puts off a lot of small businesses. Now, however, these dynamic pricing technologies are affordable for a greater number of retailers because they are cloud-based and do not require significant fixed investments. For example, a Canadian company called 360pi has adapted a comparison-shopping technology that is being used by a growing number of retailers in North America. The technology involves the use of “data crawlers” and artificial intelligence to trawl retailers’ websites and obtain information on both price and inventory for literally millions of individual items of merchandise. An individual retailer subscribing to the service can access the information daily, compare prices and make strategic decisions.
Of course, a lower-tech and more “fly-by-the-seat-of-your-pants” way of doing things is to empower your sales staff on the shop floor or at the checkout to match prices if the consumer has found a better deal somewhere else, or at least to negotiate a price that enables the sale instead of relinquishing it to a competitor.
But this is fraught with problems
- It's not strategic: It's reactive and means that the retailer is constantly on the back foot when it comes to pricing.
- The customer may vanish: Without the sales staff having an opportunity to intervene.
- It may put more discretion in the hands of employees: Than some owners might be comfortable with.
At the end of the day, if consumers are going to be empowered with real-time insight through technology, then it makes sense for retailers to operate with full information through technology too.
It’s time the light went on in the dark room.