Price cuts aren’t competitive—they’re a last-ditch effort to shift product, no matter the cost.
That’s according to Geoff Watts, co-founder and chief executive of retail technology firm Edited.
In a post published as part of a series on LinkedIn in which professionals appearing at ShopTalk in Las Vegas discussed the most pressing issues facing the industry today, Watts warned that in a race to the bottom, everyone loses.
While he said that dynamic or real-time pricing works for the likes of Amazon, all but guaranteeing a consumer that they can find whatever they want at the cheapest price possible, that same approach to sealing the deal does not work for apparel retailers.
“Here’s dynamic pricing’s inescapable flaw: it’s reactionary. And in apparel retail, if your pricing strategy is reactionary, you lose,” Watts wrote. “Success is built on retailing ahead of the market, anticipating shifts months out in accordance with lead times and phasing in new product with a strategic, almost musical, cadence to drive sales ahead of saturation.”
The reason: each product within a store is part of a larger story that that retailer is presenting as a whole to consumers. Watts noted that in order to support that model, pricing must be holistic.
“As tempting as it may seem to chase sales volume down the rabbit hole of dynamic undercutting from the outside, smart apparel retailers know better,” he continued.
So while some discounting is “healthy and necessary,” particularly at a time when newness slows or holiday shoppers are hunting for deals, a steady stream of markdowns not only dilutes a brand’s value, it trains consumers to only spend when something is on sale.
“Ask any retailer that’s had to re-train consumers to buy first price and they’ll tell you it’s more than a struggle, it’s a fight. Increased marketing spend, brand new assortments, re-branding and store closures are its weapons,” Watts said, adding that maintaining a “first price, right price” perception is vital to the health of a brand.
Dynamic pricing, on the other hand, only hurts both the top and bottom lines.