RSR recently published its latest benchmark on the state of Retail Pricing, Retail Pricing 2017: The Dawn Of Personalized Prices. Pricing is one of those “perennial ” subjects that is always interesting, but especially so in the last several years. We’ve watched the increasingly desperate price wars that retailers have been engaging in since the early days of the Great Recession, and have commented frequently that this a fight that ultimately will have no winners. But in the last year, there has been keen interest around two subjects that many retailers hope will break the destructive cycle: “personalized pricing ” and “dynamic pricing “. My RSR partner Nikki (who also co-authored the benchmark study with me) recently wrote an excellent piece on the difference between the two concepts, and one of her points that stood out in the context of the benchmark study was that “both types of pricing, dynamic and personalized, require a large degree of sophistication and access to a lot of real-time data. “

The reason why that’s such an important point is because pricing in this fast moving and ever-changing consumer-driven environment, retailers need to embrace the power of modern information technology to be able to respond very quickly when they sense shifts in demand, before they can even think about “personalized ” or “dynamic ” pricing. Today, Winners carefully monitor demand indicators such as customers’ increased purchase frequency, whether consumers buy more within a category, and whether they are expanding their categories of purchase. They use technology to stay on top of those key metrics so that they can respond in time to correct course when pricing or promotions aren’t working as they had hoped.

The benchmark survey points out that differences in the performance groups underline a subtle but important distinction: Winners use competitive prices to help create excitement around the Brand to drive demand, while their lesser-performing peers tend to see price as how the Brand’s value is defined. So in spite of a sharp uptick in the number of price and promotion downloads to stores since our 2016 benchmark report, and which would seem to work against retailers’ general objective to improve gross margins, Winners have been successful in finding a balance between being perceived as price-competitive and conveying a more compelling value proposition.

Keys To Winning

When we probed into what makes a Winner a Winner, we found some key capabilities when it comes to pricing strategies. They are:

• Winners have the processes and systems in place to manage price relationships/rules between their own item prices;
• They have effective policies in place to manage different prices and promotions across channels and touch points;
• Winners collect data from new channels and using them to make better pricing decisions…
• … And they have the ability to quickly respond to competitors’ price changes.

When it comes to promotions, we found these standout capabilities in Winners:

• They regularly identify and eliminate “bad” or ineffective promotions;
• Winners target their promotions at an appropriate level of granularity…
• …And they regularly use data modeling to identify the best candidates for promotions;
• Winners have processes in place to manage promotional planning across organizations within the company (marketing, merchandising, channels, etc.);
• Over-performers regularly measure the full impact of a promotion (product cannibalization & halo, as well as redeemed offers that cannibalized existing purchase intent).

But all of these capabilities are still a prelude to personalized and dynamic pricing.

What the Next Generation Of Winners Will Be Able To Do

Right now, most of those retailers defined in our study as Retail Winners already have the technologies in place to make the pricing and promotion capabilities list above possible. Now they are focused on improving execution at the store level, to further guarantee the consistency that they know consumers demand today. Average and under-performers haven’t thrown in the towel though – they have plans to acquire and implement the technologies that Winners are already using, to catch up.

So what’s next? Retail Winners feel much more strongly than average and under-performers that “personalized pricing ” will be prevalent in 3 years’ time, and that “dynamic pricing ” will be used as an answer to competitive price matching. But as Nikki pointed out, all of that is dependent on sophisticated technologies being fed realtime data from not only internal operational systems across the entire selling environment, but also external sources for competitive and market-performance data.

And that’s the future: a sense-and-respond retail environment. “Three years ” might be overly optimistic, but there’s no question that technology providers can provide those kinds of capabilities now. So it’s all a question of whether retailers will make the investments to make it happen. If the past is any indication, someone will, and that will redefine what it means to create excitement around the Brand to drive demand. And that someone will be the prototype of the next generation of Winners.

Stay tuned!