Retail Pricing Strategies: 6 Ways to Protect Margins 🙀

 

Leading retailers such as Woolworths and Coles use online pricing strategies and tailored promotions to compete for customers. Online businesses such as Sephora, Mecca, Showpo, ASOS, PrettyLittleThing, The Iconic and Pet Circle also use these approaches. Retailers need to assess these initiatives at the product level to understand their impact on revenue, margins and customer behaviour. Developing better retail pricing strategies is now a priority for Australian CEOs. The shift to digital retail makes this task increasingly important.

 

What Are the Most Effective Retail Pricing Strategies?

 

Effective retail pricing strategies help businesses respond to changing customer behaviour, improve revenue and protect margins. Retailers can make better commercial decisions using several approaches. These go beyond blanket price reductions and basic cost-plus calculations.

• Use SKU-level pricing: Set and review prices at the individual product level to account for differences in demand, value and competitive pressure.
• Measure price elasticity: Assess how customers respond to price changes, alongside other indicators of customer behaviour.
• Segment customers: Identify differences in customer needs and value drivers to develop more relevant pricing and promotional offers.
• Manage discounting carefully: Avoid excessive promotions that train customers to wait for sales, weaken price perception and erode profitability.
• Improve online pricing: Use competitor price indexes, customer data and more frequent price reviews to respond to changes in the market.
• Build pricing capability: Develop dedicated pricing and analytics teams with the technical, commercial and leadership skills needed to support better decisions.

 

These approaches work together. Price optimisation alone cannot solve underlying capability gaps or replace a clear understanding of customer value. Retailers need the right people, processes and pricing culture to implement these strategies effectively.

The following examples explore how retailers can apply these principles across online retail, grocery, discount management and customer experience.

 

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>Download Now: Free PDF How to Drive Pricing Strategy to Maximise EBIT Growth

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The problem is that many businesses have been too slow to update their pricing strategies, category management methodologies and eCommerce platforms.

 

At Taylor Wells, we think this is a big mistake for the following reasons:

 

• Customers now make cross-channel buying decisions. They may start shopping online on their mobiles or computers, even if they ultimately buy in-store.
• Customers use the internet to compare prices across retailers. They no longer rely on memory or a notebook. Instead, they use price-comparison sites. Even new concepts such as crypto-currencies are appearing.
• Pure play online retailers are now re-pricing top-selling items up to 12 times a day. Businesses such as Amazon, Alibaba and Uber use data and technology to adjust prices or offers in response to changing market conditions. The frequency and timing of these changes vary by business, product and pricing system.
• Customers now demand personalised offers, promotions and deals. Retailers are now creating personalised promotions based on someone’s shopping history.
• Retailers are now hiring technical pricing and data talent to maximise revenue. Businesses of all sizes are looking for people who can turn data into profit. Data analytics and modelling alone are not enough. Employers also want people who can translate insights into margin growth.

 

We strongly believe that, in order to sidestep mass players like Amazon, businesses must build stronger eCommerce platforms.

 

Businesses must build eCommerce platforms that offer more than a direct sales channel. These platforms should operate as marketplaces. They can combine specialised products, services and content, while involving consumers and third-party businesses in creating and receiving value.

 

This article brings together discussions on retail price management, including pricing, sales, discounting, consumer spending, marketing and category management. It evaluates key pricing methodologies and the development of eCommerce retail over the past five years. It also examines their impact on category management, sales and pricing. By the end of the article, you will be better informed about the steps you need to take to develop an effective retail pricing strategy for your business and prepare your staff and customers for change.

 

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 Table of Contents:

I. Retail Pricing Strategies: Strange Things Happening With Australian Retail Prices

II. Retail price management: The End of Treasure Island in Australian Retail 

III. Online Retail Pricing Strategies: How Not to Get Scammed

IV. Australia’s Pandemic Retail Bloodbath: Rocked by Bad Retail Pricing Decisions

V. Shoppers That Seek Discounts Can Be A Gold Mine For Retail Businesses

VI. Pricing Strategies In Retail Management To Boost Revenue Before Christmas

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Capability Building Programmes For Pricing & Sales Teams!

 

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Retail Pricing Strategies: Strange Things Happening With Australian Retail Prices

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What are the latest retail pricing strategies?

 

Many retailers are responding to the new online digital retail era by reducing their prices for most items to keep up with Amazon’s retail pricing strategies.

 

What Happens when Operations drive Pricing? ⛽ Podcast Ep. 70!

 

Many retailers follow a predictable high-low pricing approach, setting prices slightly below those of their competitors to drive volume and retain customers. These are tactical pricing decisions rather than necessarily a long-term pricing strategy.

 

Some retailers are attempting to improve their online retail pricing strategies by optimising their prices. However, most retail pricing strategies and optimisation efforts still appear to automate cost-plus thinking at the category price level.

 

A handful of talented pricing and data teams are bucking the typical retail pricing trend and are well on their way to optimising at a very granular, line-item price level while managing price and data complexity.

 

We see some exceptional examples of teams transforming their retail pricing strategies and sales techniques to re-connect with the market and customer by:

 

• Building and referencing competitor price indexes
• Developing individual line item elasticities
• Creating dynamic pricing groups based on individual line item value drivers (rather than static category-level segments)
• Recalibrating statistical models using new data sources (i.e., user reviews, search activity, click-through rates, bounce rates and purchase rates)
• Creating a set of line-item value-based price groups to understand demand (rather than just category-level segments).
• Refreshing their prices more frequently and more precisely (i.e., moving different items in and out of different price groups based on shifts in the market).
• Stimulating and tracking the relative values of goods and services across multiple segments.

 

Price elasticity

 

Price elasticity helps businesses understand how customers respond to changes in individual product prices. However, it provides only one view of how online shoppers respond to different price points. Many major retailers combine it with other indicators of customer behaviour. These measures can help them identify potential changes in traffic over time.

 

Implications

 

If you think basic price optimisation is a silver-bullet solution for improving online retail pricing, you’ll probably lose hard-earned margin and damage price perception. This is especially risky if your competitors are optimising their retail prices at a more granular, line-item level across multiple segments.

 

It’ll only take a matter of days before your teams begin to react to competitive price pressure, especially if they are relying on inflexible pricing structures and optimisations. Don’t be surprised to find that your teams have been using deep discounts and random promotions and deals to win new business from frustrated customers actually looking for more personalised offers. Your online competitors may start winning high-value customers. These customers may make impulse or big-ticket purchases. Competitors can gain an advantage by investing more time and resources in online pricing strategies, IT and pricing capabilities.

 

Advanced pricing requires investment in three areas: sophisticated pricing capabilities, dedicated team resources and an aligned pricing culture. Changing a reactive, cost-plus pricing culture takes sustained effort. Teams need to align their objectives, develop pricing capabilities and build a stronger understanding of how customers value their products.

 

Price optimisation is an ongoing process, not a silver bullet solution.  As you go through the process, make sure you have the right teams, skills and thinking in place to implement more sophisticated retail pricing management and tactics.

 

 

Next step

 

To execute more sophisticated retail pricing strategies, you’ll need dedicated price and data analytics teams capable of governing line-item price decisions.

 

Listed below are some of the technical skills that key pricing, commercial and category management teams will need to master to implement retail pricing strategies in the new online retail era:

 

• Statistical testing
• Price elasticity
• Price trials, tests and experimentation
• Store or zone rules and competitor trend analysis
• Contribution margin analysis & cost pass-through rate
• Category analysis – markdown effectiveness, stock-inventory levels

 

Pricing Recruitment For Pricing Managers!

 

However, technical skills alone are not enough to drive retail pricing strategies. Pricing and category teams also need strong communication, strategic influencing, leadership and a commitment to building a high-performance pricing culture.

 

Successful retail leaders, for example, actively pursue financial results without shifting the costs onto other stakeholders and teams. They understand that price optimisation and the retail pricing strategies that underpin it are only the first steps in the journey. They are 100% committed to building a high-performance culture. However, truly successful leaders believe that how the business makes the journey to high performance is at least as important as getting there.

 

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Conclusion

 

There are new trends in the online pricing retail marketplace that are impacting online and brick-and-mortar retail pricing strategies. We see leading Australian retailers transforming their retail pricing strategies, including their organisational structure and team structures.

 

We see some exceptional examples of advanced pricing and analytics being successfully executed in the online retail space. Also, we see a larger number of Australian retail businesses still figuring out how to set up and integrate a new pricing capability within the business and falling behind their competitors.

 

Evidence shows that high-performance retail teams and organisations are not just technically skilled. They are also passionate about achieving clear financial goals and contributing to retail pricing strategies.

 

Successful retail pricing strategies need exceptional leaders at every level. These leaders guide the organisation towards a new definition of pricing success. They care about results without being defined by them. They also value the journey from A to B as much as the financial gains at the end. These leaders understand that people are unlikely to support a new pricing vision if the journey to profitability is slow, miserable and unnecessarily painful.

 

⇑ Table of Contents

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Capability Building Programmes For Pricing & Sales Teams!

 

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Retail price management: The end of Treasure Island in Australian Retail

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Centralising Pricing Functions for Large Companies 🚩 Podcast Ep. 77!

 

 

 

Pricing Recruitment For Pricing Managers!

 

As Heinz CEO Bernardo Hees said in a video message to Kraft employees in April of the year following the merger: “In many places, our similarities will create synergies and our differences will open up opportunities…but we all understand that change is never easy and brings with it a lot of uncertainty and questions.”

 

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Conclusion

 

In Australian FMCG, price inflation can influence revenue and margins across the value chain. However, its impact varies between retailers, suppliers and product categories.

 

Retail price management teams may cut back on brand marketing to meet profit targets, while others increase prices and risk unexpected volume losses.

 

Leading FMCG companies have discovered how to boost revenue and grow profitability. They have taken time to understand how their retail price management and commercial teams should engage with each other, the sales force, major accounts and consumers.

 

⇑ Table of Contents

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Capability Building Programmes For Pricing & Sales Teams!

 

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Online Retail Pricing Strategies: How Not to Get Scammed 🦹🏿‍♂️

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Will Shoppers Pay More for a Better Retail Experience 🛍 Podcast Ep. 90!

 

The ACCC’s concern was that the earlier price increases could mislead consumers about the savings available through the promotion. The alleged price increases were generally around 10%.

 

The case highlights why retailers should ensure that advertised discounts reflect genuine savings against an appropriate reference price.

 

 

Pricing Recruitment For Pricing Managers!

 

 

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〉〉〉 Get Your FREE Pricing Audit  〉〉〉

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Capability Building Programmes For Pricing & Sales Teams!

 

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Australia’s Pandemic Retail Bloodbath: 💥 Rocked by Bad Retail Pricing Decisions

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Retail brands are rocked by bad retail pricing decisions. With the year only in its first quarter, a record number of Australian retail stores are closing shop. What is going on?

 

In early 2020, Australian retailers announced a number of store closures, highlighting the pressures facing traditional retailers as shopping behaviour and competition continued to change.

 

In January 2020, Harris Scarfe announced plans to close 21 stores after entering receivership in December 2019.

 

While this isn’t the so-called “End of Days” for the retail industry as a whole, it is truly in the midst of a “market correction” which has been compared to Australia’s economic downturn in the 1990s, that was described as “the recession we had to have”.

 

Experts think that this could only be the tip of the iceberg as consumers continue to turn more to online shopping over bricks and mortar stores. It appears Australian companies may not be quick enough to adapt to the changing retail landscape and consumer preferences and this is largely apparent from their under-performing marketing and failing retail price formula.

 

In this article, we’ll discuss factors influencing retail pricing. At the end of this article, you’ll learn how to price your product for retail. 

 

Lazy Retailing a Part of Bad Retail Pricing Decisions

 

Many experts and critics of the Australian retail apocalypse, say that a large part of the problem is “lazy retailing”. 

 

An example would be supermarket retailing. Large Australian supermarket retailers have had it easy for decades. They haven’t really had to compete or understand their customers. And prior to Aldi and Amazon showing up, there weren’t that many significant price wars between the major retailers here.  

 

In fact, the Australian oligopolistic supermarket industry has been shaken up in recent years, with major retailers coming under pressure to rethink their customer-focused strategies and reinvest in a high-performance business culture. Examples include:

 

1. upskilling staff and/or hiring people with additional skills and capabilities
2. increasing private label own brands
3. closing unprofitable regional megastores
4. opening new metro stores 
5. speciality food and products for new segments 
6. new health and beauty ranges 
7. online revenue model
8. new partnerships 
9. new suppliers with innovative offers
10. better distribution and targeted discount promotions

 

Now even fashion and footwear categories are exposed to not just competition from fast fashion, but also a much more improved discount department store offer.

 

They mistakenly relied on their longevity in the market to maintain market share and have resorted to tactical pricing for too long (i.e., heavy discounting and blanket promotions) to ride out the retail apocalypse. 

 

This reactive pricing strategy has clearly not been working well at all. Instead of sourcing better products and setting up pricing teams to drive profitable revenue growth, many retailers have cut costs, relied on excessive discounting and promoted their recommended retail prices. As a result, customers no longer trust prices, sales or value brands. Retail industry profitability is at risk and declining as a result.

 

For example, discounting by 20 or 30 per cent means retailers must sell more stock to achieve the same sales revenue as last year. Each sale also involves logistics and other costs, which eat into earnings.

 

What’s more, there’s no guarantee that customers will buy in bulk or on promotion just because you’ve offered them more at discounted rates. Many customers are sceptical when they see a big discount. Others don’t buy because they don’t want more stuff for free. A volume-based pricing strategy based on simplistic cost-plus calculations often devalues the brand and indicates problems with the RRPs as well as with the company’s finances and business model.

 

Can the market correction be halted? Let’s examine some of the solutions:

 

• Keeping pace with the customer with retail pricing decisions

 

As customer expectations continue to rise, brands have a real challenge in keeping up. Retailers need to understand what their customers really want, what they value and why they buy from them. 

 

Are Brands still valuable to consumers in 2022? 🛍️ Podcast Ep. 104!

 

Buying and selling are fast entering the domain of digital retail, while shopping is an inspirational, aspirational and emotional conduit for the consumers. They shop for the experience or to fix a problem or need. They do not shop for the item.

 

Many retailers seem to have geared their businesses for network growth over the past 10 years, which is a CAPEX heavy strategy often incompatible with customer growth. Moreover, some retailers have trained their customers to expect a sale or discount, and are now finding it very difficult to un-train bad habits. Other retailers have assumed all their customers are price-sensitive shoppers and have been underselling themselves for years; throwing away, in turn, millions of dollars each year which they really didn’t need to do.

 

Mobile devices play an important role in online shopping, allowing customers to research products, compare prices and make purchases while on the go. However, it may surprise you to know that 1 in 2 millennials actually still prefers to shop at shopping malls/in-store.

 

With this in mind, it’s time to strategise and bridge the gap between online and in-store. E-commerce and retail are no longer separate. Indeed, they are one and the same.

 

Digital Retail is a Pressure but Not an Excuse for Bad Retail Pricing Decisions

 

Digital makes it a lot easier for customers to shop around. Australian retailers shouldn’t be focusing solely on local brands that are posing a threat, but also international brands.

 

Although this adds pressure to Australian retailers, it should not be an excuse to stop trying or lower retail selling prices. Think about how you can connect the online and in-store experience. Technology is not the only way to understand who your customers really are. The pricing team can effectively determine how to price your product for retail.

 

Retailers should use social media to build customer relationships. They should engage with customers before, during and after a sale, including through aftercare support. Although most people love to be self-sufficient when using digital, they also like to rely on real feedback and advice from real people, especially when they are buying something new or when something goes wrong. 

 

Automating everything with AI is a mistake. People like to deal with people when they have a problem. Think about automating the delivery rather than the problem-solving part. 

 

 

How can a Retailer Sustain its Business Amidst Bad Retail Pricing Decisions?

 

• Stop prioritising acquisition – find who your most profitable customers are and take care of them. Deliver the right value for the right customer. Network value is a diminishing asset. Find the balance between brick-and-mortar and online. Customers want both. You need to determine the right balance for your business. Not all businesses are the same. 

 

• Don’t be discount obsessed – focus on the actual customer experience. A satisfied customer will spread the word around about their store experience. A pricing team could also be a good investment for retail companies, as it can identify practical options to increase revenue and margins within each segment.

 

• Accept multiple communication channels – no matter how a customer contacts you, you need to have access to the same information. If a customer complains via social media, then calls the contact centre – the agent should immediately respond and solve the problem quickly.

 

• Don’t open new stores – if the existing ones are under-performing. Before even considering opening a new store, you need to be sure your existing stores are doing well and have a true grasp of your existing customers’ needs, wants and desires, and ultimately how to bring them back to the store.

 

• Employee retention – although customer experience is essential, employee experience is also important. Good front line employees can really make a difference to your business. Hence, look after them. Consequently, they will look after your customers and your business.

 

Pricing Recruitment For Pricing Managers!

 

Implications

 

• Retailers who use simplistic markup on costs to set prices often end up under or overcharging customers and underselling themselves. 

 

• Australian retailers need to work smarter, not harder. Give people a reason to be in your business and stores beyond just high pay or massive discounts.

 

• Companies need to have the will to adapt to the changing retail landscape around them.  This is especially important as consumer preferences are changing so quickly, and there’s a confusing multitude of choices competing for your customers’ attention.

 

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Conclusion

 

• It is not only digital disruption that’s causing the closure of so many Australian retailers but the quality of the products, customer satisfaction and bad retail pricing decisions which are accelerating the decline. Don’t make difficult problems an excuse to give big discounts because they don’t fix the issue.

 

• Retail businesses need a strong online presence and a world-class pricing team to compete in the current marketplace. Having category managers handle pricing on a part-time basis is not good enough. Pricing is a full-time role and an expert’s function. Not everyone can do it.  

 

• Customer retention is essential to succeed in today’s market. Consequently, retailers should understand their customers’ preferences and how to set retail prices in order to influence future behaviour. Segment your customers, and identify the customers who can help you achieve business growth. Be prepared to stop pleasing everyone, and focus on the right customers. 

 

• You’re already experiencing high customer churn. Why not generate more profitable sales from customer segments that really want and get the value of your offer?  

 

⇑ Table of Contents

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Capability Building Programmes For Pricing & Sales Teams!

 

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Shoppers That Seek Discounts Can Be A Gold Mine For Retail Businesses 👛

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The factory outlet and off-price retail segments offer retailers an opportunity to reach shoppers looking for branded products at reduced prices. McKinsey’s analysis of the European fashion industry reported industry revenue of €368 billion in 2021 and estimated that the off-price segment accounted for approximately €40 billion, or 11% of the market. McKinsey projected that the off-price segment’s share would reach 12% by 2025. This should be treated as a historical forecast, not a verified current market figure. Hence, it’s worth examining what the most effective pricing strategy for retail factory outlet business in Australia is too.

 

The Australian factory outlet retail segment attracts mid-market shoppers who seek affordable luxury below the recommended retail price. The segment shows signs of high growth and value, particularly as online channels expand.

 

The problem is that outlet shoppers and factory outlet sites remain relatively under-researched and misunderstood. This is particularly true in Australian retail. Much more effort and more resources in Australian retailing are directed to traditional retailing strategy based on budget, everyday ‘Westfield mall shoppers and sites. Online retail is still an area that is relatively immature in Australia too.  

 

In this article, we will continue to discuss this profitable outlet shopper retail segment in Australia while making ongoing comparisons and evaluations of UK and US trends in the same segment.

 

The article covers the outlet shopper segment, changes in fashion and premium goods retailing, and key revenue and margin opportunities for retailers selling affordable luxury and premium goods online or in-store.

 

We believe outlet retailers can benefit from a distinctive customer experience, differentiated pricing and tailored product strategies. These approaches should reflect differences between online and in-store shopping. They may create opportunities for Australian outlet sites and mid-market high-street retailers.

 

We believe there is a growing need for a separate retail strategy for midmarket factory outlet shoppers buying affordable luxuries below RRP and that this strategy should be treated as a complementary segment to full-price offerings.

 

Is There An Optimal Pricing Strategy For Factory Outlet Retail Business?

 

Capability Building Programmes For Pricing & Sales Teams!

 

What Is A Factory Outlet Retail Business Segment? 

 

Factory outlet shoppers are consumers who seek branded or premium goods at prices below the usual retail price, without necessarily looking for the lowest available price.

 

The goods outlet shoppers buy include products in the mid-market, premium, affordable-luxury and luxury price categories.

 

Examples and Opportunities for Developing Pricing and Marketing Strategies for Factory Outlet Retailers

 

One distinctive feature of outlet retail is the opportunity to create a unique customer experience through better site design and location. Outlet shoppers have for many years endured pretty grotty customer experiences compared to the average shopper.   

 

For example, in Australia, outlet sites are often tucked away well outside built-up urban areas and are not easy to reach. The overall sites and their stores are not much better than drafty warehouses with very few amenities and restaurants and dusty air conditioning tubing and electrical wiring hanging precariously from the ceiling. 

 

Premium goods are often piled onto tables and racks for outlet shoppers to sort through.

 

Pricing and product assortment are all over the place. Little effort is made to ensure outlet shoppers feel welcome or special. Customer service is non-existent. Overall, the customer experience is very transactional: get your affordable luxury and leave.   

 

In the US and UK, outlet shoppers are considered a valuable source of revenue for retailers. Much more care, attention and money are also devoted to creating a unique customer experience and sites for outlet shoppers. In fact, outlet malls and sites are now rather unique, with customer experiences on par with those of mid-market malls, and some even showcase luxury brands. 

 

For example, the Westfield mall in Stratford near the London Olympic stadium is a prime example of a mid market retailer evolving its retail strategy to not only include outlet shoppers but set them aside as a high value segment.  

 

This is how it happened. 

 

In 2012, Stratford in London was in the process of gentrification. The area had become headline news overnight as a result of the London Olympics; and consequently more government and investment money was flowing into the suburb. 

 

People entering the suburb were not wealthy as such, but certainly had disposable income to spend on affordable luxuries. Young families, young professionals – really target market customer groups for midmarket retailing. 

 

As the suburb’s midmarket appeal grew, so too did the need for a new type of shopping experience.

 

The local, run-down high street, with its tired 1970s shopfronts and outdoor markets, was well and truly out of date and considered undesirable and dangerous to visit. 

 

Westfield stepped in to fill the gap in this suburb and market. But not with the usual Westfield mall experience found at its Notting Hill site. Rather, it offered a new and distinct experience for outlet shoppers. A first of its kind in the UK. 

 

Westfield Stratford City differs from the UK norm in that it resembles a luxury outlet mall, with a strategic assortment of affordable fashion and select premium goods with many of its items selling below the recommended retail prices as well as a strategic assortment of premium and ultra-premium products selling at full price.

 

Today, Westfield Stratford City attracts a wide range of shoppers. It remains a destination for outlet shoppers, while its broader appeal attracts people with different spending budgets. What’s more, Stratford Mall is not hidden away at all.

 

In fact, it is located close to Liverpool street and has convenient transport links; great restaurants, artistic/architectural pieces, and outdoor and indoor space with nice gardens, and walkways. A totally different experience to the grotty Australian factory outlet experience shoppers continue to endure to get premium goods just a little bit cheaper than usual. 

 

Will Shoppers Pay More for a Better Retail Experience 🛍 Podcast Ep. 90!

 

Creating A Pricing Strategy For Retail Factory Outlet Business

 

In many respects, the factory outlet shopper segment is an outlier in the Australian retail industry and perhaps an afterthought in most retail strategies. Saying this, however, its size and rapid growth in online channels represent a significant opportunity for retailers.

 

Another key differentiator is that outlet shoppers also show a higher propensity to buy midmarket, premium, affordable luxury, and luxury brands than other segments. Understanding which brands, products and price points attract outlet shoppers can help retailers refine their online product ranges and pricing strategies.

 

Online channels can support growth in off-price retail by giving shoppers convenient access to a broader product range, search and filtering tools, and offers across different brands and price points.

 

This suggests that the number of outlet shoppers is increasing and that they can be highly profitable at the SKU level. What’s more, unlike the average Westfield shopper, outlet shoppers aren’t necessarily seeking out the lowest-priced items. Rather, they care more about – and are willing to pay more for – brand selection and exclusive offers. 

 

It is not surprising, then, that retailers are gradually introducing a more strategic approach to pricing at the SKU level to capture the $ value of brands that appeal to the outlet shopper segment without losing volume or margin. 

 

In fact, SKU-level price setting and analysis are becoming increasingly important for retailers with complex product portfolios. This is particularly relevant to retailers managing more than 10,000 SKUs, including colour and size variations, current-season products, previous-season products and old inventory. This is because SKU level price setting not only helps retailers manage brands to avoid brand dilution, it also enables them to optimise prices, price promotions and order quantities.  

 

For example, many brands use price promotions and discounts to manage their supply and demand levels. It is becoming more common for UK retailers to use discounts to appeal to outlet shoppers and draw in new customer groups as well. It is also a common technique for retailers to use discounts to manage volumes and inventory levels and dynamically price when demand for items is higher or lower than expected.   

 

Discussion On Pricing And Marketing Strategy For Retail Factory Outlet Business

 

High street retailing for the midmarket has changed a lot over the past few years. The first generation of highstreet retail, for example, was all about protecting margin by making sure shoppers couldn’t buy premium versions for less than the retail price.

 

Retailers have long put considerable effort into ensuring that their product ranges, prices and assortments do not dilute brand equity. Retailers have long considered outlet shoppers a segment that can potentially undercut the full-price market and destroy brand equity. 

 

However, as the Westfield Stratford example above shows, retailers are gradually realising that outlet shoppers are, in fact, high $ value shoppers based on what and how they buy. They are also far less price sensitive than ‘budget’ shoppers.

 

When they buy, for example, they tend to buy in volume, they also like bundles and they really understand the value of brands. In effect, they are willing to spend a lot more (in terms of money and number of items) for just a little bit off the RRP. For retailers, understanding these shoppers’ preferences can reveal opportunities to improve product selection, pricing and profitability.

 

In terms of online retail platforms, retailers that offer ‘outlet shoppers’ affordable luxury at lower prices will also win more share and share of wallet online.

 

We say this knowing that retailers have for a long time now thought giving outlet shoppers online access to SKU level pricing and discounts was dangerous as prices were just one click away. 

 

In fact, for years now, price visibility online was the main reason why so many luxury brands were reluctant to participate in the outlet shopper market in any meaningful way – either in store or online. However, the emergence of closed website portals for shoppers like the ‘outlet shopper’ actually enables retailers with premium and luxury brands to disclose prices and discounts while keeping barriers in place. 

 

Retail brands must remain disciplined in their pricing and ensure that customers understand the value of their offers. SKU-level analysis can help retailers account for differences in demand, product attributes and price sensitivity instead of relying solely on broad brand- or category-level assumptions.

 

Pricing Recruitment For Pricing Managers!

 

Implications Of Pricing And Marketing Strategy For Retail Factory Outlet Business

 

To capture the value of the off-price retail segment, retailers need pricing, product and marketing strategies that attract medium- and high-spending shoppers online. They must also develop a distinct strategy for this segment. This strategy should recognise the potential for profitable revenue growth and support investment in well-crafted customer experiences across physical stores and eCommerce platforms.

 

To avoid brand dilution online, retailers must stay up to date with new membership-based revenue models and the latest value-based pricing techniques. Online portals and a well structured price structure are a great way to prevent shoppers from buying premium brands and goods on markdown a week later.  

 

Based on the research and retail trends to date, offline outlets and villages are highly likely to remain major destinations for all types of shoppers. But only if they provide outlet shoppers an exemplary experience. 

 

Investment in factory outlets is important. Physical outlets introduce shoppers to brands and can encourage longer-term engagement. Online channels can reinforce that relationship.

 

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Conclusion

 

The best operators of outlet malls and villages have created an excellent experience for shoppers. They did this while avoiding too much price and volume trans­parency.

 

Brick and mortar stores must evolve unique shopping experiences for outlet shoppers. There must be a special kind of experience that appeals to this segment. 

 

Online and in-store platforms and pricing strategies can offer shoppers immersive brand experiences while raising brand awareness. Outlet shoppers may be particularly receptive to further engagement because they already understand the value of many premium brands.

 

⇑ Table of Contents

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Capability Building Programmes For Pricing & Sales Teams!

 

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Pricing Strategies In Retail Management To Boost Revenue Before Christmas

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Christmas is approaching and consumers are all being blasted with sales and promos. Retailers are hungry to revive both the top and bottom lines after slowing sales growth and compressing margins. Many are using pricing strategies and gimmicks in retail management to win market share. At the same time, consumers have an acute sense that they are being targeted by retailers this year. Almost all consumers know that retail prices are going up significantly as a direct result of heightened inflation. Everyone is ready for an avalanche of sweet deals and promos that may not be so sweet to get money flowing over Christmas.

 

However, relying too heavily on discounts and using price gimmicks to encourage spending is risky. This approach also reflects short-term thinking. What’s more, more consumers than ever are onto price tricks and rejecting traditional approaches much more than they used to. 

 

In this article, we will discuss pricing strategies in retail management and how retailers are using them to boost revenue before Christmas, including the pricing and sales trends being used to encourage spending.

 

We argue that caution should be taken with over-using pricing tricks and tips before Christmas. We believe pricing tricks and tips have limited value in themselves. When overused or implemented without a value-based pricing strategy or framework, they can lead to margin loss.

 

Most Common Pricing Strategies In Retail Management During Holidays

 

Here are the top 4 among the most common pricing and sales tactics being used by retailers this year to boost revenue before Christmas:

 

Pricing Strategies In Retail Management #1: Differential Pricing 

 

Differential pricing is a strategy in which a business sets different prices for similar items based on customer type or group. It is also recognised as discriminatory pricing, flexible pricing, multiple pricing, or variable pricing by some. This involves charging different prices for similar products within a category to different customer groups.

 

Businesses use differential pricing extensively. For example, FMCG corporations, such as Procter & Gamble (P&G), use differential pricing through branding to strengthen their pricing power.  For example, a large proportion of P&G’s Olay skincare products, including bundles, are priced under $50, whereas most SK-II products are priced at or above $100. The Olay price range appeals to more price conscious/sensitive customers. The price range for SK-II, on the other hand, targets customers who are willing to spend more and value premium products. Differential pricing can therefore appeal to different customer budgets. Depending on the sophistication of a business’s price-setting capabilities, it can also target customer groups based on how much they value a product.

 

How is differential pricing implemented?

 

The initial step to implement this strategy is to define market segments. Before you set different prices for your product, you must first learn about your customers. When developing your differential pricing strategy, consider the concepts of elastic and inelastic demand. Finally, decide whether your differential pricing will be focused on your products, geographic locations, or discounts.

 

What are the advantages?

 

Differential pricing enables your company to grow and reach out to a wider range of customers, especially during holidays. Thus, the company’s overall sales may increase. For instance, when you employ coupons, sales, or rebates, your products can be more attractive to new customers. If they like it, they may continue to buy at full price after the discount expires. Meanwhile, existing customers who are less price-sensitive can enjoy the premium experience and remain loyal to your brand.

 

What are the disadvantages?

 

Differential pricing becomes inefficient when your higher-priced products do not compensate for the loss of profit from your lower-priced products. This means you’re pricing at an unprofitable low level. Besides that, when prices eventually rise after a sale or the expiration of a promotional offer, some businesses lose new customers who are not willing to pay the full price.

 

Overall value of differential pricing: Profitable prices result when businesses align pricing with market conditions, customer consumption patterns, supply and demand, and value-driver analysis or segmentation. However, gaps in commercial capability may limit the effectiveness of this approach.

 

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Pricing Strategies In Retail Management #2: Loss Leader Pricing

 

A loss-leader pricing strategy lowers the price of a specific product to attract new customers or cross-sell and upsell to existing customers. For any loss leader product, sellers hope that once customers enter the store, they will buy other items at full retail price. Then, the profits from the additional purchases can offset the losses from the first.

 

For example, an electronics retailer may decide to offer a heavily discounted TV in the mid range category to draw in foot traffic to the store. Retailers may also place the loss-leader television next to or near higher-margin televisions to encourage customers to consider those products. As a result, the store will leverage the chance that customers drawn to the discounts will also be enticed by their premium products. A loss-leader strategy can encourage upselling. However, at the unit level, loss-leader pricing deliberately sells a product at a loss to drive sales volume. This strategy largely relies on unitary price elasticity.

 

What are the advantages?

 

There are three main circumstances in which businesses can reap the most benefits from loss leader pricing. The first is when you first enter a new market. Pricing some of your products lower than your competitors’ prices can be a good way to get into the market and gain customers. The second is when attempting to increase sales, as discounts can draw more customers to businesses. Finally, it can help to build brand loyalty. This happens when despite lower prices, customers believe they are getting the best value from your products.

 

What are the disadvantages?

 

Underpricing too much or without a proper strategy can destroy profit margins. Customers are more likely to adjust their shopping habits to anticipate the next sale. There is also no guarantee that loss leader pricing will entice customers to purchase non-discounted products. If they don’t, a lot of money is lost. Businesses may run out of stock without generating enough revenue. Further to that, if the reason for the lower price is not clearly communicated to customers, they may presume that your products are of lower quality.

 

Overall value of loss leader pricing: Loss leaders can work well for large retailers that sell a wide range of products and benefit from one-stop shopping. Research suggests that customers who buy loss leaders may also purchase non-discounted products. However, overusing this strategy can damage brands.

 

Pricing Strategies In Retail Management #3: Time-limited Offers

 

Limited-time offers are promotional deals that are only valid for a limited period. These include free delivery, coupon codes, or a free product. Limited-time ads, sales campaigns, web page banners, email offers, or pop-ups are common examples of time-limited deals. This online sales tactic creates a sense of urgency by emphasising a limited time to purchase or limited availability.

 

For example, some retailers display pressure-selling messages like “30 people are looking at this right now!” or “2 left in stock.” Even price-conscious customers may be caught off guard and forego their usual price checking and comparing.

 

What are the advantages?

 

The most significant advantage that businesses can gain from time-limited offers is that pricing your products lower than usual for a limited period can increase sales and attract more customers to your business.

 

What are the disadvantages?

 

Limited-time offers can give customers the impression that your pricing is inconsistent. Customers might end up hating your promos. Some will leave your site without buying anything. The end result is that your conversion rates drop.

 

Overall Value Of Time-limited Offers: Research shows that customers can often be caught off guard and forgo their usual price checking and comparison when they are placed under time pressure. Overuse, though, or false messaging (i.e., there is no relationship between the message and actual supply or demand) increases dropout rates and raises more buying barriers. 

 

Pricing Strategies In Retail Management #4: Psychological Pricing Tricks

 

Psychological pricing involves setting prices just below a round number to create the impression of a good deal. The idea behind psychological pricing is that customers will read the slightly lowered price and treat it as lower than the price actually is. 

 

The overuse of prices ending in 9 stems from the fact that these prices can drive sales and remain widely associated with good deals among consumers, even when the deals are not particularly good. Having said that, a growing number of consumers are also becoming aware of this trick.

 

Another psychological pricing method is to offer free items or discounts in price sales. For example, “Buy one get one free” or “50% off two items?”  People prefer the 1st but they are the same. Researchers find a large proportion of consumers are unable to understand fundamental math principles as they apply them to everyday life. 

 

What are the advantages?

 

Psychological pricing increases interest in your product. Who can say no to a 50% off deal? Or discounted items with before and after prices, such as “from $100 to $89.99.” Customers’ decision-making processes become simpler. It provides a high return on investment, particularly during high-volume seasons such as the holidays.

What are the disadvantages?

 

Some customers may accept the tactic as necessary for doing business, while others may see and perceive it as manipulation. Others may even feel duped. Psychological pricing strategies are not long-term pricing solutions. They may increase sales temporarily, but only for a limited time. Some customers are willing to pay higher prices if they prefer a different brand.

 

Overall value of psychological pricing: Psychological pricing may appear to be a wise choice for your company. However, customers who carefully consider their purchases may recognise deceptive pricing tactics. These tactics assume that customers buy on impulse rather than after researching their options.

 

Discussion On How To Boost Revenue Using Pricing Strategies In Retail Management

 

Discounting and psychological pricing can influence customer behaviour and create a sense of urgency. As the examples above show, retailers are able to change the perception of a product’s value simply by adding an odd number, anchor prices, and simply by hinting at the scarcity of a product. 

 

Retailers should not use these tactics randomly to increase sales. Instead, they should clearly communicate the value of the products they sell. What’s more, the articulation of value must resonate with the customers.

 

A more differentiated pricing analytics process can help e-commerce retailers identify opportunities to improve revenue and profitability while monitoring customer satisfaction and loyalty. The best prices are those calculated using factors relating to customers, competitors and the company.

 

In essence, price is how retailers communicate the value of a product to customers. Marketing and sales communications should explain directly what customers value about the products.

 

Nothing here is guesswork. In fact, retailers must measure and monitor what their customers value about their products. No amount of psychological tricks and gimmicks will make up for a lack of strategy, commercial capability or improperly set prices. 

 

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Implications Of Pricing Strategies In Retail Industry Revenue Management

 

As you can see, discounting is yet again very popular this year. And, yes, discounting can be a good way of segmenting shoppers and consumers. This is particularly relevant at a time when people are more conscious of their spending because of interest rate rises.

 

Often, however, retailers overuse these pricing strategies and discounting tactics before Christmas to extract more value from consumers. To some degree, discounting works well during the Christmas and gifting season. At the same time, discounting must align with an overarching value-based pricing strategy and be executed precisely to avoid product cannibalisation and poor customer experiences, while protecting the value of higher-margin products and brands.

 

The Australian factory outlet segment attracts mid-market shoppers seeking affordable luxury below the recommended retail price. The segment shows signs of high growth and value, with online channels expanding rapidly. A strong value-based culture can support better pricing decisions by aligning commercial priorities, employee behaviour and customer value.

 

Consider building a dedicated pricing team to develop a stronger pricing strategy and enhance your commercial capability. With the right structure and pricing team in place, businesses can begin identifying opportunities to improve earnings, although the timing of results will depend on their starting point, capabilities and implementation. Over time, better price management processes can help teams identify and capture margin opportunities. As pricing teams mature, they can identify more complex opportunities, efficiencies and risks that may otherwise go unnoticed.

 

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Bottom Line

 

The decision to use these pricing strategies in retail management is up to you. Some may see these techniques as taking advantage of consumers’ inherent mathematical and psychological weaknesses, while others may find them to be an essential part of everyday business. Regardless, the lesson here is to be transparent and open with your customers. The worst thing you can do is to leave your customers feeling tricked after they buy your product, because then, not only will they never return, but they will also tell everyone they know not to buy your products either – or give you bad reviews and comments.