Comment: How retailers can ensure the price is right
Helen Dickinson, Head of Retail at KPMG, warns that after a season of heavy discounting retailers need to pay special attention to sustainable pricing strategies as economic conditions remain difficult.
After a Christmas season that saw many retailers turn to more drastic promotional activity and discounting to attract consumers, retailers have already begun thinking about their pricing strategy for the forthcoming year. 2012 is expected to be another tough one for the sector where volume growth will be pretty hard to come by. Getting pricing right for both your target market and your business model will be the key to survival and optimising profitability. Effective discounting must form part of a long term strategy, which must be sustainable.
Last year many retailers offset their increased levels of discounting with a cost cutting regime which enabled profitability to be maintained, or at least mitigated its potentially damaging impact. However, cost savings won’t be able to subsidise a continued assault on gross profit margins over the long term, particularly as input prices remain under pressure. Although it’s not always the case, it’s vital when discounting that retailers make an informed decision on the trade off between volumes and margin – some organisations lack this informed understanding.
Those retailers that optimise the opportunities to generate value in the post-recession world:
Put pricing strategy on the Boardroom agenda
Management time is dedicated to setting the most profitable pricing strategy. The leverage of pricing is enormous and the right strategy can drive rapid profit improvement.
Align pricing to the overall business strategy and the new market dynamics
They review the pricing strategy as part of any full business strategy review. Market dynamics and customer buying habits have changed. Previously held assumptions around market responses must be considered and challenged, and the business model re-evaluated as a result. Setting and executing pricing policy is a critical element of this to drive profitable growth.
Get access to the right information
They have access to robust, accurate and timely data to inform pricing decisions. This includes a granular level of understanding of the full cost, price versus volume tradeoffs and profitability of individual products and types of customers. Effective business intelligence does not just drive action, it drives decisions and strategy.
Are prepared for future changes
They invest time in understanding how pricing models in the sector are likely to change in the next few years, and what needs to be done now to prepare the organisation to implement those changes successfully.
An effective pricing structure is integral to the overall business strategy and is critical to creating a competitive edge that’s needed to achieve growth in today’s low-growth economy.
