Retail Pricing: The art of pricing with the support of modern IT tools
Accurate pricing is one of the key elements of a successful business. But how can we effectively determine the right price which is both profitable and competitive? How can we consider all internal & external factors that are crucial to ensure the profitability of the company? Polina Leonenko, an expert in category management at Consulting for Retail, a part of the international Atriny Group, will share the secrets of pricing.
Common problems of the pricing process
Often, retailers face several challenges in the pricing process, including:
- A large amount of disparate data is obtained as a result of various monitoring processes, which are difficult to consolidate.
- Labor intensity of the process of history analytics and forming up the future prices.
- Understanding the sensitivity of the product to markups or discounts
- Need for regular control of first-price products vs. indicator products.
Today, despite all the advancements in digital technology, many companies manage pricing using methods and applications that do not have enough capabilities of the modern era. They spend significant resources maintaining entire departments dedicated to monitoring the information necessary for cost determination.
But imagine having an assistant who takes care of most of these problems, freeing up your planners from routine processes and reducing the number of errors that occur during the pricing process. How is this possible? Let’s find out more!
How to Reduce Errors and Minimize Effort
Pricing based on manual or intuitive approaches may be acceptable when a uniform price is applied across all stores in a retail chain. However, determining the cost of a particular product involves a range of factors, including store format, regional considerations, competitive environment, and even the store’s location within a city. In other words, making pricing decisions requires taking into account a multitude of input data.
The absence of these comprehensive data in one centralized location with quick access complicates monitoring, increases the likelihood of human error, and adds to the labor-intensive nature of the pricing process.
To address these challenges, cutting-edge Pricing platforms are here to rescue. These modern intelligent software solutions provide a unified “control panel,” with a backstage that comprises an extensive and deep database containing information about stores, the products they offer, and historical changes.
With just a click of a finger, users can review the history of sort stores according to the desired formats for purposes of robust analytics. Furthermore, they have fast access to data and analytics for a specific period, enabling them to observe demand elasticity and understand how changes in pricing impact the sales of a specific product.
As a result, decisions to decrease or increase the cost of specific products are made based not on assumptions but on a qualitative analysis of historical changes and the real impact of price elasticity for each item.
Reducing manual intervention in the pricing process also leads to a decrease in errors caused by human factors. Read below for more details around the benefits of using automated pricing systems.
How Automated Pricing Platforms Work
A significant advantage of modern IT solutions is the substantial automation of pricing processes in retail. This automation minimizes the risk of human errors and significantly reduces labor requirements. However, for the system to operate effectively, certain rules need to be configured, including:
- Users can set specific rules for each product category or level of the hierarchy, and the system will automatically recommend a price that adheres to these rules. These rules can be simple (e.g., 10% markup from the cost) or more complex, depending on the amount of input data provided by the user.
- Segmentation based on regional factors (such as countries, cities, etc.) or retail store formats (premium, discounters, standard segments, social segments, etc.) allows for the selection of the appropriate pricing model and the establishment of specific rules for price formation.
- By having access to pricing information from direct competitors (through paid data monitoring systems or open sources), users can upload this data into the system and set rules such as “price not higher than…” or “price % lower than…” the competitive retail chain.
- The system supports automatic psychological price rounding, such as setting prices at “9.99”, effectively leveraging the psychological appeal of price display numbers.
- The system stores information about purchase prices and prevents users from accidentally setting prices below the purchase cost.
Once the user defines the applicable rules, automation takes over the bulk of the pricing process. The pricing system handles the labor-intensive tasks of data selection and analysis, table adjustments, and formula creation. It then suggests an optimal price based on the user’s established conditions. Users can either agree with the proposed figures or make necessary adjustments.
Furthermore, the system provides the capability to feed the finalized pricing data back into the ERP system, segmented by each retail store, cluster, etc.
It’s important to note that thanks to specialized dashboards, all the information contained within the system is accessible to users not just as individual numbers and tables but in the form of user-friendly dashboards and reports.
If you want to learn more about the possibilities of automating retail business processes or need consulting or business audit services, please contact us via email at info@atriny.group or fill out the form to request a callback. Our consultants will be delighted to assist you.
Monitoring First-Price and Key Value Indicator (KVI) Products
For competitive pricing in retail, monitoring first-price products and KVI products, which consumers use to determine the pricing segment of a retail chain (such as chicken fillets and eggs), is of great importance. The list of such products is quite extensive, and monitoring them is necessary regardless of the retail chain format or segment it covers. Unmotivated price reductions or increases for these products have a negative impact on business profitability.
An effective combination of rules can also be created for first-price products, KVI products, and indicators in the system. A multi-level system will automatically work through all possible cost variations for each product and recommend the optimal one based on precise analytical data, rather than expert opinion.
Promotions and Sales: Going an extra mile in Pricing!
Promotions are an effective tool in retail for launching new products to the market and boosting sales. However, successful forecasting and implementation of promotions take into account numerous factors, including the execution of similar promotions by competing networks during the same period.
Sales are one of the most relevant methods for clearing inventory. Each retail chain has its own rules regulating this process. Typically, the markup is first reduced, then removed, and the product is sold at cost or, in some cases, below cost. Over time, depending on the remaining quantity, the discount may increase, and the cost may decrease.
An automated pricing system operates with these peculiarities in mind. Users can establish their own rules within the system, and it will calculate the product’s price based on the remaining quantity and the number of weeks to forecast and sell the inventory before the product’s withdrawal date. Moreover, separate conditions can be set for each retail store format, region, or segment. Thus, the entire pricing process in the retail takes place within a single interface.
10 Reasons to use an automated Pricing System
Automation of price planning provides the retailer with several undeniable advantages, among which the following should be noted:
- Reduction in labor costs by offloading many functions to the automated system that were previously handled by personnel.
- Improved accuracy and reduced errors, resulting in increased customer satisfaction.
- Increased profitability through the establishment of optimal prices for products in the retail chain.
- Enhanced control over prices for KVI group, first-price products, and indicator products.
- Savings in monitoring efforts by integrating with online market data systems.
- Customization of rules for different sales channels, with price calculation based on format and region, including the ability to separate e-commerce and offline purchases.
- Functionality that takes into account various product attributes when determining prices.
- Prioritization of price rules, allowing, for example, exemption of other pricing rules for promotional items.
- High-quality analytics enable clear insights into how customers respond to price changes within a category or specific product. Such analytics are available at the regional, store, or individual product level.
At Atriny Group, we have over 15 years of experience in the retail industry, implementing leading market solutions from various software vendors that effectively help our clients streamline and automate their business processes.