Responsive Merchandising: Back to Basics, Part III
Part 1 and Part 2 of this blog post described our three-phased Responsive Merchandising Maturity Model: Crawl, Walk, and Run. At “Crawl” I discussed data integrity, price strategy and competitive insights, while “Walk” discussed rules-based price management.
Now for the fun part: “Run.” The wonderful thing about a phased approach is the ability to implement and improve in manageable increments and to see ROI at each milestone. But I will say candidly that in my experience the most powerful transformations come at the Run phase, where retailers gain the benefit of a pricing approach that is both rules AND science-based.
Companies in the Run stage have a maturely constructed pricing organization – because they’ve been able to establish the ROI on that model during Crawl and Walk. In addition to the executive heading the team, I generally see a Pricing Director, Pricing Managers, Price Strategists and an Effectiveness group. The team is well-integrated with other teams, most notably Merchandising, and they proactively analyze, measure and communicate the value of their price actions.
Here are other key characteristics of organizations in the Run phase:
1. Frequent and responsive price analysis and updates.
Having built an agile, responsive infrastructure with good data integrity at earlier phases. The frequency with which each key activity is refreshed varies depending on the specifics of your business, but we often see price resets daily or even intraday for retailers who are omnichannel or who are etailers; weekly or monthly key value item (KVI) updates; and quarterly category analysis refreshes.
2. Science-based pricing and localizations.
Pricing now not only incorporates rules developed during the Walk phase, but also consumer and competitive elasticity analysis to know when you should reprice on which items and by how much. More importantly, you know when you DON’T need to reprice on certain items as you move from blunt-force competitive price matching to more strategically focused practices that let you escape the race to the bottom. Organizations in this phase also localize with regional, demographic, competitive and zone-based pricing, and even do zoning by category.
3. Develop and evolve category pricing strategies and apply Market Basket Analysis.
With deep data-driven algorithms, retailers can implement more nuanced pricing strategies down to the category level. They also leverage advanced strategies to understand the effects of cannibalization and affinity on forecasted demand, to segment shoppers into like groups, and to implement more effective pricing, promotions and cross-sell offers.
4. Trend analysis – past and future.
With historical data in place including competitive price history, Run-phase retailers can do time-based analytics to yield predictive analytics on what will happen in potential future scenarios, and even prescriptive analytics to guide retailers on, say, improving performance in underperforming categories. For example, a category may be achieving top-line revenue goals but missing margin objectives. Scenario planning assists in identifying SKUs in that category which, with a price adjustment, can contribute to margin performance. With more frequent pricing now implemented, the retailer’s big data modelling has ever-richer datasets to chew on, yielding both continually deeper insights and more fine-tuned models as they apply self-learning.
The Run-stage retailer discovers the deep rewards of continuing to refine, mature and shape the ways in which it applies science and analytics to business challenges. We often see price elasticity begin to be incorporated into business intelligence reports shared with other parts of the organization, measurement of price actions including price lift analysis, and perhaps most importantly, analysis of the contribution of price optimization (and of the pricing team itself) to revenue, margins and volume performance metrics.
I’ve enjoyed sharing the pricing journey with you as we have explored all three phases of the Responsive Merchandising Maturity Model. To discuss how we can help you take the next steps on YOUR pricing journey with best results, please contact us.