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- Pricing decisions are influenced by many dynamic factors, including materials costs, brand strategy, and competitor analysis.
- Accurate and up-to-date information is crucial for effective pricing decisions, and pricing intelligence and competitive benchmarking are critical tools.
- Pricing should be seen as a continual process of data input and review that tracks alongside product development, all the way from concept to retail.
- Integrating pricing tools with PLM and planning solutions can help ensure that pricing decisions are made in context and with accurate information.
Everyone’s fighting for a share of the consumer’s wallet in a retail landscape that’s more competitive and price- conscious than ever. Pricing products with the right balance between value and profitability has always been tricky, and customer retention and loyalty are at stake every time a brand launches new products. Two-thirds of millennials are willing to switch brands for a discount of 30% or more. Now that consumers are accustomed to instant price comparison online, pricing has to be executed with precision in order to achieve sell-through at full price and to avoid costly mistakes.
Let’s explore some common pricing pitfalls, and how to get pricing on track.
Pricing is influenced by many dynamic factors
Pricing is multi-dimensional. The initial price has to be targeted correctly with cost and product margin goals in mind, but prices also have to be managed throughout the product lifecycle. Discounting to the right price to shift inventory while maintaining product margin is a particularly delicate balance. In the final stage selling window, it can become a matter of how low the price needs to be in order to move it off the ‘shelf’ as fast as possible. That’s individual product pricing—but from a 10,000-foot view, the question becomes whether you are pricing your overall assortment correctly. This is where brand strategy and competitor analysis come into the picture.
Some brands focus solely on their direct competitors. However, others might aim to anchor the prices somewhere between less expensive brands and aspirational brands. Brands will also price differently in different markets—and gathering data on those local differences is crucial.
Pricing also depends on overall brand strategy and philosophy, whether that means providing great-value basics or offering trendy, attention-grabbing products at an affordable price. This ties into your target market: do your customers care more about quality materials or low prices? Are they prepared to pay more for sustainable options? These kinds of questions need to be answered to get a handle on assortment price ranges as well as individual product pricing.
Understanding your brand’s position in relation to competitors and overall goals is crucial to developing an effective pricing strategy. Brands need to ask themselves where they are positioned from a price standpoint, and where they are providing the best value. Value can relate to consumer perception of the product itself, but it is also established in how you compare to your competition. Are you confidently sitting in a position where you want to be in relation to the competition, based on your brand strategy?
Because pricing decisions are so complex and require so many different kinds of data from multiple sources, it’s not surprising that things go awry. To name just a few of the most common pricing challenges:
- Cost of materials, assembly and shipping: In a time of raw material inflation, out- of-date costings or manufacturing estimates can lead to poor pricing decisions. Are your costings accurate and margins still sufficient to make a profit? Have escalating costs made a planned product nonviable?
- Pricing is misaligned with brand strategy: If your brand strategy and marketing are based on best-value basics, your customers are not going to expect to pay $50 for a t-shirt—even if that’s what you need to charge to make a decent margin.
- Attention to competitive dynamics: If the cost of sourcing materials and assembling the product will put it at a significantly higher price point than competitive offerings, you need to question whether that product is viable in the market and should be created in the first place. Is there any point in launching a black dress 50% higher than what your direct competitor is able to offer with a similar garment?
- Lack of competitive data: Up-to-date information on what competitors are selling, and for how much, are crucial to making good pricing decisions. What’s being discounted? How much are they marking down, and are consumers buying at that price? Maybe competitors are holding the line on prices, and you’re at risk of discounting too early and leaving money on the table.
- Missed opportunities: Is there a trend that your competitors are responding to, but you missed? Are your customers willing to pay more for sustainable products—but you haven’t got a product in development that fits the bill? Pricing, product development and merchandising are intertwined, and getting the right products to the right markets at the right time is critical to selling products at full price.
Pricing intelligence and competitive benchmarking are critical
Addressing these pricing challenges mostly boils down to one thing: access to accurate, up-to-date information that can inform better decisions. Whether it’s data on trends, materials or competitor pricing, teams cannot price effectively without the right information and the tools to analyze and understand the dynamics at play. Competitive data is particularly crucial—but how do you get hold of it, and make sure it’s still relevant?
Until relatively recently, in-person ‘comp-shopping’ was the only way to gather information on actual, in-store competitor pricing, what the collection looked like and what was on sale. Involving costly travel expenses and time-consuming shopping, ‘undercover’ photos, note-taking and phone calls back to the office, this process was far from streamlined and information was often out of date by the time it made it back to decision-makers. Even in the e-commerce era, brands continue to send employees out into competitors’ stores to see what collections look like in real life. Meanwhile, team members who could have been doing something more useful spent countless hours copying and pasting pricing information f rom competitors’ e-commerce stores into spreadsheets.
Thankfully, modern pricing solutions have made this process much easier. Scraping, compiling and analyzing thousands of data points from competitive online stores, these solutions replace tedious and time-consuming manual processes with automated, comprehensive pricing intelligence and competitive benchmarking.
Study your competitors’ playbook
Successful brands and retailers understand the importance of gathering and integrating competitors’ pricing data into decision-making and collaboration across departments including merchandising, planning, pricing and e-commerce. Rather than falling prey to thinking that only their internal data matters, they understand that it’s essential to see the bigger retail picture and particularly, insights into the competition.
They look beyond bestsellers to find out exactly what is selling throughout the industry. It’s beneficial to be able to accurately identify emerging trends and industry-wide bestsellers, not only at the present moment but also rewinding to see historic wins and losses. They are also meticulous in procuring and ensuring their data is reliable and up to date. With so many external influences, now more than ever before, the retail market is in a constant state of flux and information becomes outdated fast.
Although a sports analogy might not seem immediately related to fashion pricing, a similar dynamic takes place with competitive businesses and sports teams. You wouldn’t go into the Super Bowl playoffs without studying the playbook and plays of your opponent: their strengths and weaknesses, strategies and specific points of similarity and difference.
Brands and retailers need to treat pricing like a competitive sport. You can’t compete unless you know exactly what you’re up against—and that is a moving target, so the answer to that question changes all the time. It comes up over and over, all the way from pre- season to in-season and into the next season. In the middle of concepting, sourcing, merchandising and all the other facets of the product lifecycle, the question needs to be asked: what are our competitors doing as we’re thinking about building and launching this product?
Every conversation about a product in development should have a competitive pricing component to it. Rather than having a regular strategy review where you deep dive into pricing, it should be a process of continuous improvement.
Thinking differently about pricing
Pricing a product shouldn’t be seen as a static back-end process that happens once. It needs to be a continual process of data input and review that tracks alongside product development, all the way from concept to retail. There are many ‘checkpoints’ in a product lifecycle where, ideally, products should be checked and benchmarked against information on costs, overall assortment pricing and competitive dynamics to ensure that prices are still in the right ballpark and adjust accordingly.
During the planning and product development process, questions fly around about whether the product will be competitive, what the market wants, how to price in a way that makes sense for brand positioning while also taking into account cost, margin and other complexities.
These questions are often answered in the context of data f rom a planning or PLM solution, f rom other business systems or data researched and put together by hand from other sources. However, the real need is up-to-the-minute comprehensive, competitive pricing data to see whether pricing decisions that were made two months ago still make sense. Data on competitive discounting, for instance, can inform ‘what-if’ scenarios that project the impact of similar discounts on revenues.
Without a bridge between up-to-date pricing data, product data and planning, pricing decisions are made partially in the dark. There are many different points in the product lifecycle where competitive pricing information can be inserted for continuous improvement, all the way from pre-season to in-season.
There is no silver bullet that will tell you exactly how to price a product, but having accurate pricing information at all these different stages and continuously checking pricing will have a significant impact over time.
Pricing + PLM + Planning
So how do you make sure competitive information generated by pricing solutions is seen and interpreted in context throughout the product lifecycle to inform pricing decisions and adjustments? To achieve this, pricing intelligence needs to be seamlessly integrated with other systems such as PLM and planning.
Perhaps your company has already invested in PLM and/or retail planning solutions and is reaping the benefits of bringing products to market faster, improving sustainability and reducing material costs through more strategic sourcing. However, even by doing all of these things right, you can still miss the mark and end up with the right products sold at the wrong price, resulting in products sitting stagnant on your e- commerce site, on store shelves and in warehouses.
Revenue generation is a combination of costing + pricing + inventory optimization. It’s having a better assortment to get the right product priced correctly at the right time for the right channel. Developing assortments and pricing strategy in a vacuum is a critical mistake no brand or retailer can afford to make in this era. Pricing is far more than a simple equation of costs and margins, and needs to be reviewed and adjusted throughout its lifecycle. By integrating pricing tools with PLM and planning solutions, as can be found in Centric Software’s suite of solutions, you can leverage competitive data to get a more rounded and up-to-date picture of what competitors are doing and price products optimally.