Whether you are trying Dynamic Pricing for the first time, or are simply looking for a different perspective, there are several shared best practices for retailers to consider.
In our work with clients, we have identified the following seven steps to be the key to success when implementing a Dynamic Pricing solution.
1. Clarity on omni-channel strategy and roadmap
It is important for retailers to have a clear understanding of what the omni-channel world means in terms of the priority of pricing, promotions, and the implications of attributing sales to specific channels. This puts retailers in a better position when it comes to decisions for their different channels.
2. Understanding the link between price and offer
Retailers that understand that an offer is a function of price perception, customer service, content, and convenience have better success using price as a lever to impact margins positively. The key to skimming margins is in understanding that convenience – in terms of convenient return policies, quick delivery, good customer service, and high-quality content online – all have an impact on reducing price elasticity. This has organizational implications in terms of ideas and decisions across the merchandising, marketing, and pricing teams.
3. Identifying an executive sponsor or champion within the retailers organization to support the project
Rather than the retailer solely depending on their Pricing Intelligence vendor to understand the scope of the project, it is necessary to identify a “project champion” within their organization – someone who has the ability to quickly drive decisions of a cross-functional nature. We have found that retailers who understand the strategic nature of the project and recognize that the vendor cannot be expected to drive consensus across groups have better success.
4. Defining clear measures of success for the project
It can’t be stated enough that gathering business intelligence is worthless if you can’t act on that intelligence. Defining how you will measure success for the project will improve your ability to execute your plan and get answers to the pricing questions you may have. Outline the changes you would like to see in your pricing model and create your plan based on achieving those goals.
5. Ensuring accurate data availability for internal, competitor and market data
When hundreds of thousands of SKUs are mapped and crawled each day, the opportunity for errors can be significant and insights and critical pricing decisions based on faulty data could expose you to great risk. When researching a solution provider, look into the strength of their Quality Assurance (QA) algorithms and processes to manage data. You want a mature provider who offers a comprehensive, rule-based data integrity check system that does format, factual, timing, and logical checks on each data point.
6. Identifying control groups or A/B testing groups to compare results
Not only should retailers compare their prices to their competitors, but they should also identify control groups in their Dynamic Pricing solution in order to better analyze the results. This allows retailers to see what works and what doesn’t.
7. Spend time researching Pricing Intelligence vendors
It is important to research Pricing Intelligence vendors and find one that you feel you can trust and who meets your strategic needs. Here is a checklist of the top questions to explore when hiring a Pricing Intelligence and Dynamic Pricing Company:
- What is the cost of dashboard customizations?
- What are the vendor’s long-term product and business strategies?
- Is the vendor’s client list fact or fiction?
- Are there any hidden costs?
- What is the vendor’s flexibility and the system’s configurability?
- Do they offer ad hoc analytics?
- What happens to your data if you exit the contract?
- How transparent is the vendor about metrics?
- Is the vendor financially stable?
Mihir Kittur is a Co-founder and Chief Innovation Officer at Ugam. He oversees sales, marketing and innovation and works with leading retailers and brands with insights and analytics solutions around their category decisions to improve business performance.