Price and Promotions Wars: How to Avoid the Race to the Bottom

Retail TouchPoints – In the world of pricing and promotions, the five most dreaded words are “a race to the bottom.” That’s a contest where the only thing worse than winning is coming in second.

It’s true that price wars and their companion, overly generous promotions, can definitely eat into (or even destroy) retailers’ profit margins. Just over half (52%) of consumers receive weekly or monthly promotions for items they would have happily paid full price for, according to a Forrester Research study conducted in May 2017 and updated in April 2018.

It’s also true that getting the price right — for each customer, at each touch point and at the optimal time of the day, week or selling season — can seem like an insurmountable obstacle. But as complex and daunting as the challenges are, most retailers have access to both the data and the tools to make smart pricing and promotion decisions. But what they too often lack are the actions required to make the data and solutions work effectively.

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The big data revolution and the advances being made with artificial intelligence (AI) and machine learning have important personalization applications in the pricing and promotions arena. “Retailers like The North Face ask customers question on their web site, and then are able to connect the right products with their best customers at the best times,” said Nathan Beckstrom, Senior Consultant at BRP Consulting. “So, at the exact time a high-value customer is looking for a waterproof parka, it’s in front of their faces. Another customer that doesn’t spend at that same dollar amount would see something else, like an accessory. While it would take an individual an inordinate amount of time to figure that out, machine learning can go in, make generally good decisions to put that in front of the customer and be successful.”

Additionally, individualized or region-based pricing can backfire for retailers. “Sears and Kmart ended up paying millions in fines when they did this some years ago,” said Beckstrom in an interview with Retail TouchPoints. Even if the actions are legal, a lack of pricing consistency can hurt a brand’s image: “Customers typically want retailers to be consistent across the board,” he added. “It’s better to incentivize with gift cards and promotions versus having one customer pay $50 for an item and another paying $75 for the same item.”

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