Long under-exploited, pricing to become a real lever of competitiveness for retail brands.
Under the cumulative effects of inflation, new competition and successive crises, price is once again emerging as a strategic issue for retailers. Brands are taking the subject head on and seeking to define more refined pricing strategies to gain competitiveness and profitability.
The availability of data and “best of breed” solutions to exploit them facilitates this work, but does not replace in-depth reflection on the pricing strategy.
The central question lies in the choice of strategy. Is it better to opt for a unified, differentiated pricing strategy or, halfway, for a hybrid strategy such as pricing assembly?
In this article, discover the advantages and disadvantages of different types of pricing strategies.
The unified pricing strategy
Definition
As its name suggests, a unified pricing strategy involves setting a single price for a product or service, for all sales channels or geographic locations.
For a given product, the price will be the same in all your stores, whether you are in Roubaix or Tarbes, in the mountains or by the sea, in the city center or in the suburbs. It will also be the same between your stores and your websites.
Advantages of unified pricing
The unified approach has the merit of simplicity. With a single price for each product, regardless of the channel, you simplify the implementation of your pricing strategy.
Imagine a brand that has to set prices for hundreds of thousands of items in several hundred different stores. This is a daunting task for pricers, especially when prices are constantly changing. Even with a dedicated solution, employees must check that everything is consistent and compliant.
With a unified strategy, the problem does not arise. The price is the same everywhere. There is only one price per product. Here, the issue is above all that this single price is the best possible price.
Unified pricing guarantees consistency of prices and price image. The prices in store, the prices online, the prices which appear in advertisements are identical, throughout the territory. Your pricing strategy is therefore simple and intelligible for your customers.
This is one of the reasons why the unified approach is often used by discount brands. They invest a significant part of their turnover in advertising and put price at the heart of their positioning.
If the price image is distorted or inconsistent, this creates risks of friction in customer journeys. Conversely, a single pricing strategy is easier to communicate to customers.
Another advantage, unified pricing avoids competition between stores of the same brand. Customers are not likely to abandon one store to go to its cheaper counterpart a few kilometers away.
Disadvantages of unified pricing
While it provides simplicity and consistency, the unified strategy also has several disadvantages.
Firstly, it limits the company’s ability to adapt to different contexts.
Since the price is the same everywhere, there is no notion of adaptation to the population categories of the catchment area or their standard of living. The price will be the same for a disadvantaged population in a working-class neighborhood and for residents of nice neighborhoods.
In the same way, the prices charged do not take into account local competition. Whatever the structure of your competition, prices remain fixed. In fact, you are depriving yourself of a potential competitive lever.
Still along the same lines, stores cannot adjust their prices based on their logistics costs or operating costs. In certain stores, you therefore lose profitability opportunities that you could have benefited from with a differentiated strategy.
From an operational point of view, the single price is easier to manage. But the company must ensure that this pricing is competitive and profitable in all contexts, which requires in-depth analysis. With only one price per product to set, you have more time to work on range consistency and define the optimal price.
The differentiated pricing strategy
Definition
The differentiated strategy consists of setting different prices for the same product, depending on the channel, location or type of stores concerned.
It helps retailers adapt prices based on contextual elements specific to each channel or store and is based on segmentations involving one or more criteria.
This approach allows the company to adapt precisely to local specificities and consumer demands.
Benefits of differentiated strategy
Brands are increasingly turning to differentiated prices.
Given the challenges of competitiveness, retailers are constantly looking for competitiveness gains. However, a differentiated strategy brings granularity. You adapt your prices to local specificities to boost the competitiveness of each point of sale.
In terms of internal communication with stores or franchisees, differentiation can also be an asset. You offer each store its own price recommendations, adapted to its catchment area, its customer types, its local competition.
You are thus moving from a standardized approach to a completely contextualized approach, with promises of stronger competitiveness and profitability. Within the same network, you can segment your stores according to the criteria that seem relevant to you. For example, you can use sales forecasts or elasticity calculations that take into account the product/store mesh pair.
Disadvantages of the differentiated strategy
In terms of management, obviously, a differentiated pricing strategy is more complicated to manage.
If you multiply several thousand products to be priced by the number of stores, you understand the scale of the task. A 100% differentiated strategy requires significant calculation capabilities. It is obviously necessary to provide control mechanisms. However, if you change your prices every 2 to 3 days, who has time to make sure everything is consistent?
The fear, by going this far, is losing reliability what you gain in granularity. Price differentiation also raises questions at the level of processing time.
These questions are legitimate. However, “best of breed” pricing solutions, such as Optimix XPA, are capable of calculating differentiated prices on a large number of references. They also include alerts to ensure that recommended prices remain consistent. Retailers can therefore rely on these technologies to implement hyper-differentiated strategies based on carefully crafted store segmentations.
The other risk, however very real, lies in the loss of coherence on a national level. Differentiation induces competition between your stores and can blur the price image of the brand in the minds of consumers.
Here too, safeguards exist. You can, for example, set a pivotal price and establish that store prices cannot deviate from it by more than X%.
“Hybrid” strategies
Differentiation of “top products”
To avoid the complexity of a fully differentiated strategy, the first possible option is to only apply differentiation to your “top products”.
You can, for example, set yourself an 80/20 rule. For the majority of products, you adopt a unified strategy. But, for your 20% best-selling products, you opt for a differentiated strategy.
The tariff assembly
Pricing assembly is another option regularly used, particularly by independent networks.
The center wants to make price recommendations that will be consistent across the entire network and followed by the points of sale. But she also wants to give stores room to maneuver.
The price assembly will then consist of calculating an average price, in a given area for example or depending on the competitive area. And, around this pivotal price, the central office offers more or less aggressive price ranges to stores. Each point of sale will then be able to adapt its pricing strategy while remaining within acceptable limits in relation to the pivot price.
This method requires upstream store segmentation work, then it can be partly automated. This is an approach widely used in the pharmacy sector, for example.
- - - - - - - - - - - - - - - - - -
Today, the trend in terms of pricing strategy is more towards differentiation.
To gain competitiveness and optimize the margins of each store and each channel, brands prefer to opt for a more granular approach to price calculation.
The use of a differentiated strategy is made possible by technological developments. With the best pricing solutions on the market, you can quickly calculate prices based on multiple criteria and for many products. The technological barrier to differentiation no longer really exists.
In any case, whatever your pricing strategy, unified, differentiated or hybrid, calculating the best price remains a necessity.
Are you looking for a solution to help you make pricing a competitive lever? Contact us for a demo.
